Netflix co-CEO Ted Sarandos
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Netflix says it has seen strong growth in its ad-supported space for the second quarter in a row, even though the business is still in its infancy. However, the ad tier has grown so large that the company will begin discontinuing its cheapest ad-free option later this year.
In its fourth quarter 2023 earnings report, the streaming giant said ad tier subscribers accounted for 40 percent of new signups in countries where advertising is offered, up from 30 percent of new signups in the third quarter. Netflix also reported membership growth in the advertising tier of about 70 percent compared to the third quarter, similar to its last report.
Co-CEO Greg Peters said on the company's earnings call that Ad Tier has 23 million monthly active users in the 12 countries where it offers the plans, and he expects that number to continue to grow. While he acknowledges that it will be years before advertising “has a significant impact on our overall business,” he likes the current direction the company is taking.
“Every market is different – there is no magic MAU number,” Peters said. “But it’s fair to say there is plenty of room for growth in all the markets we operate in.”
Peters also noted that promotional packages similar to wireless carrier T-Mobile's “Netflix on Us” offering can help spur subscriber growth. The free promotion converts to the ad tier after a set period of time, and Peters said the lower price of the ad tier can make the economics work better for both Netflix and its partners.
Given the growth of the ad tier, the company reiterated its plans to phase out the Basic membership tier in the coming months. The plan – currently the lowest-cost ad-free option on Netflix – will be phased out in the spring for all subscribers in Canada and the UK[e] it from there,” he said in his letter to shareholders. (Netflix stopped offering the basic tier to new subscribers late last year.)
Netflix's promotional team, led by Amy Reinhard, will have a lot more inventory to offer in 2025 when it becomes the home of WWE's flagship program, Monday Night Raw. The deal is Netflix's largest commitment to live programming to date, covering 52 weeks of live shows per year.
In its letter to shareholders, Netflix executives also hinted at the possibility of price increases. “As we invest in and improve Netflix, we occasionally ask our members to pay a small premium to reflect these improvements, which in turn helps drive positive momentum of additional investment to further improve and expand our service,” it said it in the letter.
January 23, 2:03 p.m Updated with comments from Co-CEO Greg Peters.