In recent years, there has been a lot of speculation about the possibility that the subscription business could kill advertising in the near future. However, it’s now become evident that both models are necessary, catering to different segments of users. Netflix‘s recent announcement of launching its own advertising technology platform by 2025 exemplifies this shift.
Initially reliant solely on its subscription services for revenue, Netflix boldly ventured into advertising in late 2022. What’s particularly noteworthy is the rapid growth of Netflix’s ad-supported plan, now boasting an impressive 40 million global monthly active users. This is a jaw-dropping 700% surge from the previous year’s 5 million MAUs. These users now constitute over 40% of signups in countries where the ad-supported plan is available.
Given the rapid success achieved within just one year since the launch of the ad tier, Netflix’s decision to build its own adtech platform appears strategically sound.
With the launch of an in-house advertising technology platform, Netflix will end its reliance on partnerships with third-party providers. By developing proprietary solutions tailored to its specific needs and ambitions, the global OTT giant is poised to take full control of its advertising capabilities. As a result, this move positions Netflix in direct competition with industry giants such as Google, Amazon, and Comcast.
Motivation Behind Netflix’s Advertising Push
Netflix’s decision to introduce a lower-priced ad-supported plan came amidst a challenging period, marked by either single-digit yearly growth or declining paid streaming subscribers to its platform. The downturn began in Q2 2021 when Netflix reported a mere 8.4% YoY growth in global streaming paid users, a stark decline from the robust 27.3% YoY growth observed in Q2 2020. The addition of only 1.54 million new paid subscribers in Q2 2021, compared to 10.09 million in the same period the previous year, signalled a significant slowdown in subscriber growth.
The trend of single-digit growth in Netflix’s global streaming subscribers persisted until Q2 2023. In a particularly challenging period, the platform lost more than a million paid subscribers in the first half of 2022. In response to these challenges, Netflix implemented various strategies, including ending password sharing and launching a low-priced ad-supported tier plan. These efforts bore fruit, with Netflix adding approximately 21.88 million new paid subscribers to its platform in Q3 and Q4 2023, achieving double-digit yearly growth.
Netflix Shows Confidence
During its “Upfront presentation,” Netflix showcased unwavering enthusiasm and confidence in its advertising business.
Bela Bajaria, Netflix’s Chief Content Officer, emphasized the platform’s highly engaged audience, highlighting the significant value viewers find in Netflix content. This value translates into longer viewing sessions and an increased likelihood of recommending the platform to others.
What’s particularly intriguing is the behaviour observed among Netflix’s streaming members: they exhibit even higher attention levels three hours into their viewing sessions compared to the beginning. This heightened engagement makes them more responsive to advertisements, resulting in a twofold increase in their likelihood to respond to ads compared to viewers on other OTT platforms. Nielsen data further validates the significance of this engagement, indicating that over 70% of Netflix’s ad-supported members spend more than 10 hours per month watching content on the platform, surpassing the nearest competitor by 15 percentage points.
Netflix will soon broaden its buying capabilities by incorporating The Trade Desk, Google’s Display & Video 360, and Magnite as main programmatic partners for advertisers.
The introduction of the Netflix ads plan and live events presents advertisers with enhanced opportunities to engage thoughtfully with the platform’s dedicated fanbase. Leveraging its expanding marketing and creative teams, Netflix aims to assist more brands in finding resonance with its vast 270 million global paid streaming subscribers. What’s your take on the upcoming launch of the Netflix adtech platform? Let us know in the comment section below!
