Screens with Commercials: Netflix Ad Tier Hits 23 Million Users, Reshaping Streaming Landscape

Netflix’s ad-supported tier has crossed 23 million global active users per month, the Variety magazine reported on Wednesday, quoting the streaming giant’s advertising chief Amy Reinhard. The ad tier plan was launched in November 2022 in 12 markets, including the United States, to attract more customers and add a new revenue stream as competition for online viewers intensified. A year after its launch, Netflix said the ad tier had reached 15 million active users per month. The figure counts all adult profiles on a Netflix account with ads and excludes children’s accounts.

While the new ad tier is still a tiny slice of the overall subscriber base, ad-supported subscribers generate higher average revenue per user than their ad-free counterparts, boosting the company’s profitability. Netflix executives expect the gap to narrow over time as the company continues negotiating with studios to acquire rights for more titles.

The ad-supported tier has gained around 5 million new subscribers in the past six months, the company told investors during its virtual upfront presentation last May. That’s just 2% of its current 238 million paid subscribers. But it’s a sign that consumers want to save money by switching to the lower-priced ad-supported tier.

Media experts say this shift points to a more significant trend in the digital video industry, as consumers express interest in cheaper ad-supported subscription options over pay TV services that offer the same content for more money. Many of those alternatives also feature fewer ads or no ads at all.

Despite its early lead in the ad-supported streaming market, Netflix is still adjusting its approach to the business, aiming to differentiate itself from rivals like Disney and Comcast. The company is experimenting with new ad formats, such as single-show title sponsorships like Frito Lay’s Smartfood’s sponsorship of the second season of the reality show Love Is Blind.

Netflix is also increasing the number of features available to ad-supported subscribers. The company has already begun offering ad-supported subscribers 1080p video quality, an upgrade from 720p; two concurrent streams, up from one; and, starting this week, downloads of TV shows and movies, making it the only ad-supported streamer to provide these perks. The changes come amid a shakeup of the company’s senior leadership, with executive Jeremi Gorman departing as head of ad sales and Amy Reinhard being promoted to president of advertising.

Both have been at the company for over a year and bring experience in ad-supported and social networking businesses. They joined other recent management appointments, including Eunice Kim, who led data and insights, and Elizabeth Stone, who led technology. All three execs previously held positions at YouTube and Google. The reshuffle is expected to help drive more advertising sales and revenue growth. The company plans to boost the number of salespeople working on its ad-supported and original ad products and create a dedicated brand team for its growing international operations.

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