Netflix June quarter results have revealed “steady” progress for its ad tier subscription model but confessed that it didn’t expect the tier to be a primary driver of revenue growth this year or next.
Membership grew 34% in the June quarter compared to the March quarter with the ad tier accounting for more than 45% of all signups in markets where this model is available (including Australia).
In a letter to shareholders confessed that building this ad-supported platform would take time but that it is “growing nicely” and is becoming “a more meaningful contributor” to the overall business. “Building a business from scratch takes time — and coupled with the large size of our subscription revenue — we don’t expect advertising to be a primary driver of our revenue growth in 2024 or 2025″.
“The near-term challenge (and medium-term opportunity) is that we’re scaling faster than our ability to monetize our growing ad inventory,” Netflix wrote. “Based on everything we’ve learned and our progress over the last 18 months — we’re confident that advertising will be a key component of our longer-term revenue and profit growth”.
In the interim, Netflix has said that the goal is to continue to build ad sales, measurement, and tech capabilities to future-proof the ad tier and give advertisers new ways to buy, insights to leverage, and ways to measure impact. “In the UK, starting September, Barb will measure Netflix’s ad-supported plan, making it easier for clients to plan campaigns and understand their audiences on Netflix,” Netflix wrote.
“We also have new features like the ‘pause’ or ‘keep watching’ ads and in the two months since the launch of the beta in May, we’ve closed over 60 pause ad campaigns with big brands like Expedia, Coca-Cola, Ford, L’Oréal and McDonald’s”.
“Most important of all, at our Upfront, we announced our new, in-house ad tech platform, which we’ll test in Canada later in 2024 and launch more broadly in 2025”.
The streaming giant is also expanding its programmatic offerings to include The Trade Desk, Google DV 360 and Magnite.
“Given this sustained progress, we believe that we’re on track to achieve critical ad subscriber scale for advertisers in our ad countries in 2025, creating a strong base from which we can further increase our ad membership in 2026 and beyond,” Netflix wrote.
The platform first introduced its ad tier in 2022 in response to a decline in growth. Increasing the prices for existing customers, the ad-supported option costs just $6.99 a month and sees a few ads an hour pop up into natural plot breaks in a program – just as they would on free-to-air television. Ad breaks are shown on the progress bar when playback is paused. When an ad break starts, the number of ads in the ad break appears in the upper-right corner. Fast forward and skip aren’t available when an ad is playing. A few programs in the Netflix catalogue are unavailable through this ad-supported version due to licensing restrictions.
Overall, Netflix added a better-than-expected 8 million global subscribers in the June quarter, bringing its total to 277.7 million. The platform seemingly benefitted from the crackdown on password-sharing and the popularity of titles such as Bridgerton and Baby Reindeer.
Revenue was up 17% to $US9.5 billion, and Netflix now expects full-year revenue growth of 14% to 15%.
