Netflix Ad-Supported Subscribers Reportedly Hit 1 Million After Slow Start

Netflix (NYSE: NFLX) has seen some traction in its ad-supported tier and after the slow start the business now reportedly has hit 1 million subscribers.

Bloomberg reported that internal data that is “at least” a month stale showed that Netflix surpassed the milestone of 1 million subscribers for its ad-supported tier. Furthermore, data from research firm Antenna showed that in January, almost a fifth of new Netflix subscribers went for the ad-supported tier.

The streaming giant launched the ad-supported tier in November last year. It was quite a volte-face for Netflix as the company always supported ad-free streaming. However, after losing streaming subscribers in the first half of 2022, it changed its stance.

Netflix offered the ad-supported tier at $6.99 in the US which is cheaper than the other plans. While markets feared that the tier would lead to lower margins because of competitive pricing, Netflix allayed and said that the tier would be margin accretive.

During the Q4 2022 earnings call, Netflix said that it wasn’t witnessing consumers downtrading from premium plans to the ad-supported tiers.

It said, “We aren’t seeing as expected much switching from high arm subscription plans like premium into our ads plan. So, the unit economy remains very good as we modeled. So, these are all really good initial sort of progress points.”

Netflix Ad-Supported Tier Hits 1 Million Subscribers

Netflix sees the ad-supported tier and password-sharing crackdown as two of its key growth drivers. Amid peaking market penetration, rising competition, and macroeconomic slowdown, Netflix has taken several measures to increase revenues and cut costs.

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Netflix ad-supported subscribers hitting 1 million is a milestone as previously there were reports that the company refunded money to some advertisers for failing to meet viewership targets.

That said, the number is still a fraction of the almost 74 million that Netflix has in the US. Globally, it had 231 million paying subscribers at the end of 2022, while Disney+ had 161.8 million global paying subscribers.

Like Netflix, Disney also launched the ad-supported tier last year. Under Bob Iger, who took over as the CEO in November, Disney is working on a transformation plan to boost its profitability. The company also withdrew its streaming subscriber forecast as it shifts focus from subscriber growth to profitability.

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Streaming War is Heating Up

The streaming war has escalated as multiple legacy media companies have entered the industry. However, barring Netflix, other players are struggling to post profits.

For instance, Disney’s DTC (direct-to-consumer) business, which houses the streaming segment, posted an operating loss of $1.05 billion in the December quarter. In contrast, Netflix reported an operating income of $750 million in the quarter.

Meanwhile, NFLX has started to crack down on password sharing and the company estimates that nearly 100 million households watch its content through shared passwords.

The company acknowledged that the crackdown on password sharing won’t be “universally popular.”

It however added, “We’ll see a bit of a cancel reaction to that. We think of this as similar to what we see when we raise prices. So, we get some increased churn associated with that for a period of time.”

All said, with the streaming war escalating, companies are looking at ways to keep their growth intact while protecting the margins. This is where the ad-supported tier can help streaming companies as they can add price-sensitive buyers without taking a significant hit on their margins.

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