- Netflix’s revenue grew nearly 3% in Q2 2023 to $8.2 billion, in line with the corporate’s latest earnings report. Paid subscriptions increased by 5.9 million, with sign-ups exceeding cancellations.
- While membership to its ad-supported plan has nearly doubled since Q1, revenue from that a part of the business is not yet “material” to the corporate’s bottom line, per a letter to shareholders.
- Executives on an earnings call detailed the progress of the nascent ad business, which could see increased attention as the corporate continues to phase out its basic ads-free plan across the globe.
Netflix’s latest earnings period saw growth in each revenue and subscribers that the streaming company attributed to the rollout of paid sharing — its euphemistic term for a crackdown on password sharing that had begun to negatively affect revenue. The company can be pushing users to higher-cost plans or ad-supported ones and isn’t any longer offering a basic ad-free plan within the U.S. and U.K. after initially phasing out the choice in Canada.
While much attention has been paid to Netflix’s ad-supported tier, which launched in November 2022, the corporate’s promoting business is not yet having a cloth effect on the underside line. Ad plan membership grew almost 100% versus the prior quarter.
“Building an ads business from scratch isn’t easy and we’ve plenty of exertions ahead, but we’re confident that over time we are able to develop promoting right into a multi-billion dollar incremental revenue stream,” the corporate said in a letter to shareholders.
Executives on the corporate’s earnings call provided some detail about its progress on the promoting front. Major priorities include constructing out scale and advertiser-facing features which can be table stakes for a digital ad business, including verification, measurement and targeting, explained Greg Peters, Netflix’s co-CEO, president and director, on the decision.
“There’s just tons of labor ahead of us, tons of opportunity, and we’re really focused on continual improvement. And we’re also confident that each one the basics are there and that we are able to construct over those several years, a cloth ads business,” Peters said.
Part of that work is standing up its ad-tech infrastructure, each internally and alongside global ad-tech and sales partner Microsoft. Netflix has “tens of engineers” working to ramp up its ad-tech capabilities, per Peters. Eventually, the corporate could end its partnership with Microsoft once its build-out is complete, a Hollywood marketing executive previously told the Financial Times.
The company stays confident that its ad business will eventually generate 10% of its revenue. While it anticipates drawing from each linear and digital ad spending budgets, Netflix is currently more focused on linear, brand-focused TV promoting spend.
“That’s the sweet spot that we are able to speak to straight away. We’re definitely constructing capabilities and have an aspiration to construct capabilities that over time will allow us to expand that envelope,” Peters said. “There’s a number of dollars there. There’s a number of dollars in search of great consumers to attach with and we expect we are able to provide that solution.”
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