Netflix making an entry into the ad-supported space was one of the biggest watershed moments we’ve seen in the streaming space so far. While AVOD tiers are nothing new, for the once-giant of streaming to make such a shift in its corporate branding was rather novel- but very needed, at a time when both its brand and stock price took heavy losses amid lackluster results and a lack of adaptation to modern streaming norms. While the launch is still in early days, Netflix execs claim it’s off to a ‘solid start,’ but is it? Brandon Blake, entertainment lawyer at Blake & Wang P.A, takes a closer look.
$3B Expected Revenue
During the recent Q4 earnings interview, Co-CEO Greg Peters mentioned that the service will ‘soon’ bring in about $3B in annual revenue. Based on the idea of the ad-supported tier accounting for 10% of their overall revenue (declared at $32B), this is roughly in line with independent analysts’ predictions, too.
Viewer engagement was reported as ‘comparable to similar users’ on the non-ad enabled plans they offer, too. Plus, of course, the famous ‘solid’ growth for the newly launched tier. They again stressed that they are expecting to populate the tier mostly with new signups, rather than people switching from existing plans.
This may be borne out by the reported growth in subscriber numbers for Q4, which showed a great growth acceleration from the rest of the year and came out well ahead of Wall Street predictions for this quarter.
The Hulu Model
We again saw them name-drop Hulu, too, as a close model for their own advertising business. This isn’t the first time the service has featured in their talk around their ad-supported tier, either. Of course, Hulu isn’t the worst model for an ad-supported streaming service. While it remains relatively small in the larger streaming pool, roughly 50% of Hulu’s subscribers use their ad-supported offering, and it adds about $2B to Disney’s bottom line annually, even with US-only subs. The equivalent Netflix tier has launched in 12 territories to date.
Despite this rather positive talk, they were also quick to remind people that building the ad-tier to an equivalent height will be a process spanning several years, although they hope it will become a ‘meaningful part’ of their overall business model.
Will they also explore a FAST option? While they declared themselves ‘open’ to the idea, Sarandos stressed that they have many other priorities to address first. So we can take that as a no for now. Netflix are, after all, dipping their toes in the gaming market as well as attempting to throttle password sharing and correct their content pipeline. While they didn’t offer many specifics about the crackdown on password sharing- once a selling feature for them- it has been promised that this will be addressed in Q1 of the New Year. It will be interesting to see if the lure of said content is enough to encourage people to pay for a sharing service that was once free. They seem confident, at least. For the rest of us, we will have to wait and see.