When Netflix launched its ad-supported subscription tier in November, the initial sign-up numbers could be charitably described as “soft.” In its first month of availability, the ad tier reportedly accounted for just 9 percent of new signups, and only 0.2 percent of all US Netflix subscribers benefited from the “Basic with Ads” plan.
Now, however, it looks like Netflix’s advertising efforts are starting to pay off. Based on The informationNetflix informed its advertising partners that subscriptions to the new tier doubled during January compared to November.
Netflix did not immediately respond to IndieWire’s request for comment on the increase in sign-ups.
As with many Netflix metrics, there’s a caveat: The streamer reportedly didn’t tell advertisers the actual number of January signups and total subscribers for the tier. Last fall, when Netflix began making deals with marketers to support the tier, management reportedly estimated that the tier would attract 1.75 million subscribers by the end of the first quarter, roughly 2.4 percent of Netflix’s entire North American subscriber base. %-the.
By comparison, when HBO Max’s ad tier launched for $9.99 a month last June, subscription analytics firm Antenna reported that 15 percent of new signups in the U.S. in the first month and 14 percent of new customers downgraded from the premium tier. .
Hulu, which has offered an ad tier since 2007, has roughly 57 percent of its user base on its ad tier. Disney-owned Hulu is said to have been Netflix’s main inspiration for building its ad tier, with Netflix CFO Spencer Neumann comparing it to Hulu’s during the quarterly earnings call. In addition, Netflix has hired several former Hulu members to build its nascent ad sales team, including Peter Naylor, who leads the team.
Advertisers have had issues with Netflix’s ad offerings, The Information reported, as the service was apparently expensive for ad slots and offered limited ad targeting tools. In addition, many campaigns fell short of their target viewers on Netflix in November, some by as much as 50 percent.
That said, ad performance has reportedly improved since the service launched, with ads nearing 100% on targets in January. In addition, Netflix plans to improve its ad targeting — which currently only targets users by broad age groups, as opposed to other demographics such as gender — in the coming months. According to The Information, ad executives were willing to give Netflix the benefit of the doubt given the novelty of the ad tier.
“They’re terribly overhyped about how much they’re underperforming,” David Campanelli, chief investment officer at Horizon Media, told The Information. “This is a brand new product launched from zero homes in the beginning. We did not fall short of our expectations.”
Netflix’s level of advertising has been a concentrated push to grow the streamer’s subscriber base and strengthen its revenue streams after a tumultuous year of stagnant and declining subscribers. In its earliest days, before it started making original shows, Netflix sold itself on its lack of advertising.
As the company grew, management continued to resist the idea of an ad tier. In a fourth-quarter 2019 earnings call, former CEO Reed Hastings said, “We want to be the safe resting place where you can explore, be inspired, have fun, enjoy, relax — and have no argument about exploiting users with ads.” Clearly, the shift in Wall Street’s view of streaming — which now values profits over subscription numbers — has allayed fears of exploitation.
In addition to the ad level, Netflix has also responded to their 2022 loss with measures to discourage password sharing or the use of another person’s Netflix account by a non-subscriber. On Tuesday, Netflix announced a new way to crack down on profile sharing, requiring users to log in to a specific WiFi address every 31 days to avoid being kicked out of their account.
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