Netflix’s Ad Tier Push in Focus Amid Subscriber Slowdown

Netflix likely added the fewest members in five quarters in April-June as password-sharing clampdown gains slowed and user attention shifted to summer sports like the Euro soccer competition

According to data from LSEG, the organization increased its subscriber base by approximately 4.82 million during the second quarter.

This would represent the lowest number of additions since the first quarter of 2023 and approximately half of the 9.3 million it added in the previous three months.

However, the streaming giant’s initiatives to promote a lower-priced ad-supported tier have resulted in substantial growth in ad revenue. The company’s advertising revenue is anticipated to have increased over twofold during the June quarter.

The most rapid expansion since the second quarter of 2021 is anticipated to be the 16.4% increase in overall revenue to $9.53 billion.

According to Nielsen data, Netflix’s original series, including the historical romance “Bridgerton” and the limited series “Baby Reindeer,” inspired by comedian Richard Gadd’s encounter with a stalker, dominated the most-watched listings during the second quarter.

The streaming giant’s efforts to broaden its lower-priced plan with advertising and to provide updates on new growth drivers will be scrutinized by investors when it reports second-quarter results on Thursday.

The company announced in May that its ad-supported tier had reached 40 million monthly active users worldwide and accounted for 40% of all sign-ups in the countries where it was available, a significant increase from the 23 million users it had in January.

Investors have responded favorably to the advertisement campaign. Netflix’s stock has increased by nearly 35% over the year, while the S&P 500 index has only returned approximately 19%.

During the summer months, Netflix and its competitors, including Disney+, experienced a decline in viewership because many individuals travel. According to analysts, the Olympic Games, which commence on July 26, are also anticipated to tempt some viewers to abandon Netflix this year.

AD FOCUS

MoffettNathanson, a brokerage firm, observed that Netflix can increase viewership by utilizing its competitors’ content, following a significant investment in original content. It was observed that eighteen of the top 20 streamed titles were acquired programs, including “NCIS” and “Grey’s Anatomy.”

Additionally, Netflix has disclosed partnerships for bundling. Netflix is available to Xfinity internet and TV subscribers through Comcast’s Peacock streaming service and Apple TV+.

Netflix also hosts more live content, such as its agreement to broadcast two National Football League games on Christmas Day to create more appealing events for advertisers.

Ross Benes, senior analyst at Emarketer, stated that the company will make additional live-event announcements to enhance its ad-supported time spent, which is currently experiencing a decline in the production of scripted content across the industry.

Netflix announced in May that it would establish an in-house ad technology platform to facilitate the next development phase. This platform will provide marketers with additional methods for purchasing commercials and evaluating their effectiveness. Initially, it relied on Microsoft to establish the foundation of the ad tier.

In a note issued on Monday, Jessica Reif Ehrlich, an analyst at BofA Global Research, stated, “We continue to regard advertising as a longer-term narrative and do not anticipate a substantial revenue contribution until 2025, despite this progress.”