If you’ve been on the internet recently you’ve probably noticed several articles about Netflix and how the streaming giant has for the first time in a decade, posted a net loss of subscribers to the tune of 200,000 in Q1 of 2022. Further, the company estimates they’ll lose as many as 2 million more over the next few months.
While it is somewhat inevitable that Netflix’s meteoric growth would eventually slow down, it still came as shock to consumers and investors alike, with stock prices falling sharply after the Q1 report was published.
Netflix has stated, in a letter to shareholders, “Our relatively high household penetration — including the large number of households sharing accounts — combined with competition, is creating revenue growth headwinds”. While the reasoning makes sense, we believe the biggest reason for the decline is the large amount of streaming services that have popped up in recent years like HBO Max, Disney+, and Amazon Prime, to name a few.
Consumers are now spoiled for choice when at one time, Netflix was the only one worth considering. Unsurprisingly, the numbers have the company concerned and they’re looking for ways to remedy the situation. One of the solutions is the introduction of an ad-supported streaming tier.
Netflix has said in the past that they weren’t interested in implementing such an option but as other streaming platforms like Disney+, Amazon Prime, and Hulu embrace ad-supported streaming, Netflix has warmed up to the idea with the CEO, Reed Hastings, saying “think of us as quite open to us offering even lower prices with advertising as a consumer choice.”
And the move would be a financial goldmine for Netflix, seeing as at the end of 2021 they had an average revenue per user (ARPU) of $14.82 whereas Roku, with half the number of active users, achieved $41.03 ARPU in the same quarter. This could skyrocket Netflix’s revenue even more.
While Netflix has yet to officially implement ad-supported streaming, it looks all but certain that’s the road they will take. Which makes this huge news for brands and advertisers.
Netflix is the biggest streaming platform in the world with 221 million subscribers worldwide. Opening up the platform to ads means brands suddenly have access to a huge, diverse audience. Further, the addition of another AVOD service creates competition within the space to the benefit of brands and advertisers looking to get involved.
And not only will advertisers be able to reach more of their target audience, but depending on the model Netflix chooses, there could be immense value in the data gained. Netflix’s algorithm already predicts so much about a consumer’s habits, advertisers will find themselves with a wealth of new information should Netflix choose to share it.
While it should be noted that many of their subscribers will opt to pay the higher subscription cost for ad-free content, many consumers will happily pay the lower cost in exchange for ads.
And should you be an advertiser wanting to target Netflix subscribers, you'll need to first make sure your product or service aligns with the demographic that has chosen to opt for ads at a lower cost. After all, certain demographics will simply choose to pay the premium price and not receive ads at all.
Despite everything currently up in the air, advertisers should keep a close eye on the industry and start preparing for the very real possibility of connecting with consumers through the world's biggest streaming platform