Netflix Shifts Focus to Growing Ad Tier as Subscriber Growth Slows
Netflix, the global streaming giant, is shifting its focus towards growing its ad-supported tier as subscriber growth shows signs of slowing. In the second quarter of 2024, the company added approximately 4.82 million subscribers, the lowest addition since the first quarter of 2023. This slowdown follows a surge in subscriptions after a crackdown on password sharing and comes as viewer attention has shifted to major summer sporting events like the Euro soccer tournament.
Subscriber Growth and Financial Performance
According to LSEG data, Netflix’s subscriber additions in the second quarter were significantly lower than the 9.3 million added in the previous three months. Despite this slowdown, Netflix’s efforts to promote a lower-priced ad-supported tier have resulted in robust ad revenue growth. The company’s ad revenue is expected to have more than doubled in the June quarter, contributing to an overall revenue increase of 16.4% to $9.53 billion, the fastest growth rate since the second quarter of 2021.
Content Performance
Netflix’s original content continues to perform well, with shows like the historical romance “Bridgerton” and the limited series “Baby Reindeer” topping most-watched charts in the second quarter, according to Nielsen data. These popular shows have helped maintain viewer engagement despite the competitive entertainment landscape.
Ad-Supported Tier and Investor Confidence
In May, Netflix reported that its ad-supported tier had reached 40 million monthly active users worldwide, accounting for 40% of all sign-ups in available countries, up from 23 million in January. This growth has resonated positively with investors, driving a nearly 35% increase in Netflix’s stock price this year, compared to a 19% return on the S&P 500 index.
Seasonal Challenges and Competitive Landscape
Summer months traditionally see a decline in viewership for streaming services like Netflix and Disney+ as people travel. This year, the Olympic Games, starting on July 26, are also expected to divert some viewers from Netflix. However, Netflix is leveraging its vast library, including acquired shows such as “NCIS” and “Grey’s Anatomy,” to maintain viewer engagement.
Strategic Initiatives
To further bolster its offerings, Netflix has entered into bundling partnerships with Comcast, which offers Netflix alongside Peacock and Apple TV+ for its Xfinity customers. Additionally, Netflix is expanding its live content, including a deal to stream two National Football League games on Christmas Day, creating advertiser-friendly events to attract more ad revenue.
Ad Technology Development
In May, Netflix announced plans to develop an in-house ad technology platform, providing marketers with more tools to buy commercials and measure their performance. Initially, Netflix relied on Microsoft to build the backbone of its ad tier, but the new platform will offer more advanced features and capabilities.
Long-Term Advertising Strategy
Despite the progress in its ad-supported tier, analysts like Jessica Reif Ehrlich from BofA Global Research view advertising as a long-term revenue driver, with significant contributions expected only by 2025. This cautious outlook underscores the ongoing evolution of Netflix’s business model as it adapts to changing market dynamics.
As Netflix navigates a period of slower subscriber growth, its strategic focus on expanding the ad-supported tier and enhancing its content offerings positions the company for sustained success. By leveraging partnerships, developing new technologies, and capitalizing on its vast content library, Netflix aims to maintain its leadership in the competitive streaming industry while exploring new revenue streams.
