Netflix saw an increase of 7.7 million subscribers in Q4, beating analyst expectations of 4.6 million, but its existing user base isn’t buying into Basic.
“I think it’s kind of a hard sell,” said our analyst Daniel Konstantinovic of Netflix’s Basic with Ads tier on our “Behind the Numbers: The Daily” podcast. Existing Netflix users are used to ad-free content, and even a cheaper price won’t win most of them over, he said.
Could a potential recession change that? As consumers tighten extraneous spending, they may be inclined to trade down to cheaper tiers, but as it stands, people may actually be inclined to hold onto their subscriptions.
“There's been a lot of concern about consumer spending regarding inflation,” said Konstantinovic. But counter to previous expectations, people are still subscribing to streaming. “Not only have people shown they are willing to pay for entertainment through difficult economic times, but they’re actually adding more.”
Consumers may not prioritize entertainment forever. “You have to wonder if [the economy] worsens that number will kind of start to move in the opposite direction and people will really start cutting significantly,” said Konstantinovic. That could be good news for Netflix’s ad business.
The magic number: Netflix aims for ads to make up 10% of overall revenues. “It seems pretty reasonable they can get there,” said our analyst Paul Verna. “The question is how quickly,” because there are stumbling blocks.
Netflix’s recent appointment of Greg Peters as co-CEO alongside Ted Sarandos indicates the platform’s ad focus. “Greg Peters was one of the prime movers behind getting this ad business off the ground,” said Verna. “I think now both advertising and content are center stage.”
Ads aren’t the only thing changing at Netflix. The streaming platform’s 2023 content slate is significantly smaller than it was in 2022.
What does this mean for advertisers? Netflix didn’t become an ad giant overnight when it launched Basic with Ads. But it still has great potential, despite sluggish initial adoption.
This was originally featured in the eMarketer Daily newsletter. For more marketing insights, statistics, and trends, subscribe here.
One Liberty Plaza9th FloorNew York, NY 100061-800-405-0844