Netflix raised the ceiling on how much you could spend on a monthly subscription in October.
Netflix says it had a second straight quarter of strong growth in its ad-supported tier, though the business is still in its infancy. The ad tier has gotten large enough, however, for the company to start retiring its cheapest ad-free option later this year.
In its earnings report for the fourth quarter of 2023, the streaming giant said subscribers to the ad tier account for 40 percent of new signups in countries where ads are offered, up from 30 percent of new signups in the third quarter. Netflix also reported ad-tier membership growth of about 70 percent vs. Q3, similar to its last report.
Co-CEO Greg Peters said on the company’s earnings call that the ad tier has 23 million monthly active users in the 12 countries where it offers the plans, and he expects that number to continue growing. While acknowledging that it will take years to make advertising “a material impacter to our general business,” he likes the current trajectory the business is taking.
“Every market is different — there’s not a magic MAU number,” Peters said. “But it’s fair to say there’s a lot of room for growth in all the markets we’re in.”
Peters also noted that promotional bundles a la wireless provider T-Mobile’s “Netflix on Us” deal, can help drive subscriber growth. The free promotion converts to the ad tier after a set time, and Peters said the lower price point of the ad tier can make the economics work better for both Netflix and its partners.
With the growth in the ad tier, the company repeated its plans to phase out its Basic membership tier in the coming months. It will retire the plan — currently the least expensive ad-free option at Netflix — for all subscribers in Canada and the U.K. in the spring “and tak[e] it from there,” the company says in its letter to shareholders. (Netflix stopped offering the Basic tier for new subscribers late last year.)
Netflix’s advertising team, led by Amy Reinhard, will have a lot more inventory to offer up in 2025, when it becomes the home of the WWE’s flagship program, Monday Night Raw. The deal is Netflix’s biggest commitment to live programming to date and will feature 52 weeks of live shows each year.
In its letter to shareholders, Netflix leaders also signaled the potential for price hikes. “As we invest in and improve Netflix, we’ll occasionally ask our members to pay a little extra to reflect those improvements, which in turn helps drive the positive flywheel of additional investment to further improve and grow our service,” the letter noted.
