Netflix‘s 18-month-old advertising subscription tier could well see its price ($7 a month in the U.S.) rise in the not-too-distant future, but Co-CEO Greg Peters says execs “love” the strategic advantages of the current level.
“In terms of raising that price, we think about it similar to pricing in general,” he said on the company’s second-quarter earnings call when asked whether the company might consider a rate hike. “We love having an entry price that’s lower. That means we are more accessible to more people in our ads markets. That’s a great thing because they can have access to all of the great storytelling we are doing there.”
In its quarterly numbers, Netflix posted a better-than-expected increase of 8 million total subscribers over the prior quarter, reaching almost 278 million globally. In its letter to shareholders, the company said its ad tier grew 34% over the first quarter and now accounts for 45% of all subscriptions in the territories where it is available. The company does not formally break out numbers by subscription tier, but said in May that it had reached 40 million monthly active users, up from 23 million in January. (MAUs is a common metric in ad-supported streaming.)
“It’s our job to increase the value to all of our members,” Peters explained. “When we have signals from our members – the amount of acquisitions that we’ve got going on, engagement, what our retention and churn looks like – then we find the right moment to ask our members to pay a little bit more to help us keep that flywheel spinning. We’ll think about that in the ads context the same way we would think about it in the non-ads context.”
Engagement on ads tier is similar to that in ad-free, Peters said, approaching two hours per subscriber per day.
Across the streaming landscape, prices are rising steadily, with many of the players in the same neighborhood as Netflix recently leapfrogging it to higher entry points for customers. Peacock and Paramount are jumping to $7.99 a month from $5.99 and both are below the lowest tiers of Disney+ and Max. Prime Video this year began inserting ads on all originals unless Prime subscribers opt to pay $3 extra per month to avoid ads. Apple TV+ remains the only major streaming service with no cheaper, ad-free option.
In the shareholder letter, Netflix said it is “on track to achieve critical ad subscriber scale for advertisers in our ad countries in 2025, creating a strong base from which we can further increase our ad membership in 2026 and beyond.” While ad revenue is “growing nicely and is becoming a more meaningful contributor to our business,” the letter continued, it won’t be a primary revenue driver this year or in 2025.
Netflix is barely two years into its pivot toward advertising, which was hastily unveiled in early 2022 as the company encountered major turbulence, shedding subscribers for the first time in a decade. After years of steadfastly insisting it would never accept ads, mainly for privacy reasons, the company executed a dramatic left turn and made the ad effort a strategic cornerstone. While results have been encouraging, “building a business from scratch takes time,” the letter noted.
