Netflix thinks ad business will generate 10% of total revenue as it matures

Although it’s still early days, Netflix Inc. executives predict that the company’s new ad-supported offerings could contribute 10% or more to the streaming leader’s revenue base over time.

Speak at the company’s January. On the 19/19 earnings call, Chief Financial Officer Spencer Neumann said Netflix would not enter the advertising space “if it does not become a significant part of our business,” which the executive defined as at least 10% of revenue. 10%. Netflix reports total revenue of $31.62 billion in 2022.

The company launched the Basic with Ads service in November 2022 in the US and 11 other countries. US subscribers pay $6.99 per month for the ad-supported service. Netflix expects its ad business to be equal to or larger than that of streaming rival Hulu LLC in the next few years, Newman said.

Netflix estimates about half of Hulu’s subscribers are on its ad tier. “It’s already a multibillion-dollar business for them, and it’s a domestic business, limited to the U.S. With less reach and less engagement than we do,” Neumann said in a statement. Said on the phone.

During the 2022 fiscal year ending in October. January 1, 2022, The Walt Disney Company. Direct-to-consumer ad revenue, which includes Hulu, rose 11 percent to $3.73 billion, the report said.

Advertising revenue growth reflected a 7% increase driven by growth in Hulu as well as growth in Disney+. The remaining 4% came from higher impressions from Disney+ and international earnings from US sports streamer ESPN+ and Hulu. The increase in Disney+ impressions is mainly due to the broadcast of important cricket matches in 2022 that were not held in 2021.

Disney+ began offering an ad-supported subscription tier in the US on December 12 at a retail price of $7.99 per month. 8th of 2022.

Netflix Co-CEO, COO, Chief Product Officer and Director Greg Peters said the company Recently entered into a measurement agreement with Nielsen Holdings PLC, it is comparing the audience engagement of its ad-supported and subscription-only offerings.

The company did not specify how many subscribers are participating in the ad-supported program, but executives assured analysts that the ad tier would not dilute the economics of its high-priced subscription base.

“As expected, we did not see [average revenue per member] Incorporate a premium subscription program into our advertising program,” peters Say.

Netflix added 7.7 million net new subscribers in the fourth quarter, bringing it to 230.7 million customers worldwide by the end of 2022, up 4% year-over-year.

advertising absorption

Respondents to Kagan’s European Consumer Insights Survey, December 2022, indicate acceptance of Netflix’s new ad tier ranges from 6% to 12% of total Netflix subscribers in France, Germany, Italy and the UK Kagan is S&P Global Market Intelligence Department’s Media Studies Group.

According to the survey, usage of Netflix’s Basic, Standard and Premium packages is fairly even across markets, with around 25% to 30% of subscribers opting for the Basic package.

In France, Germany, Italy, and the UK, there is little correlation between the adoption of an advertised product and the user’s household income level.

Linear Budget Pursuit

Currently, Netflix is ​​primarily targeting linear TV budgets, which Spencer Wang, vice president of finance, corporate development and investor relations, estimates at about $180 billion worldwide, excluding spending in Russia and China.

Over the next few years, Netflix will primarily pursue revenue aimed at a “backward-leaning experience,” which “helps with certain types of advertising and certain types of advertising goals,” Peters said.

As chief operating officer and head of product, Peters helped spearhead the launch of the ad service and has been promoted to co-CEO with Ted Sarandos. Netflix co-founder Reed Hastings was co-CEO with Sarandos but is now executive chairman.

Asked about introducing a free ad-supported service, Sarandos said Netflix is ​​”open to all these different models, but there’s a lot going on this year.”

This includes ad products as well as the upcoming Introducing paid sharing options and an extensive content list.

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