Is Netflix Adding Advertising in 2022?
Since 2008, Netflix has been a forerunner in disrupting the conventional T.V. and advertising models.
First with DVDs by mail, then moving to the first streaming offering in 2010, Netflix led the market for many years.
Netflix was one of the first studios to offer original, binge-able content and was the pioneer of what today is a big part of our entertainment lives.
But with the massive influx of new competitors in the streaming space, such as Amazon Prime, AppleTV+, Hulu, Disney+, Paramount+, ESPN+, and Discovery+, comes a lot of new competition for viewers’ time.
This streaming market saturation means subscribers have become savvier with their streaming spending. Add to this the fact that Netflix is currently the most expensive streaming service on the market, costing $15.49 a month for its most popular plan.
What does this mean? That the ad-free era of Netflix may soon be over.
How Does Netflix Make Money?
Netflix makes all its current revenue by charging subscribers a flat monthly fee to access thousands of shows and movies. Netflix’s direct costs consist of licensing fees for content that it purchases, such as old movies and T.V. shows, and the cost of producing its new original content assets.
The Netflix business model benefits significantly from economies of scale. As the subscriber base grows, Netflix benefits from lower licensing and production unit costs.
Essentially, the more paying subscribers Netflix can attract and keep, the more profitable the company can become.
However, with the current drop in subscribers, and increased competition, Netflix is now looking to alternative revenue sources.
Is Netflix Losing Money?
Now that Netflix is no longer the only streaming behemoth, the share of revenue is dropping.
In fact, Netflix reported its first drop in subscribers in more than a decade.
This subscriber drop has been a result of an increase in users sharing their logins, as well as competition from Disney+ and other streaming services.
A recent earnings report revealed that Netflix lost approximately 200,000 subscribers in the first quarter of 2022. Forecasts show that Netflix is expected to lose an additional 2 million subscribers globally by June 2022.
As a result of these subscriber losses, Netflix’s stock plummeted 35% in April 2022, eliminating around $50 billion in market capitalization.
One month after reporting the drop in subscriptions for more than a decade, Netflix has laid off about 150 employees, most of them from the global streaming giant’s U.S. operation.
Why Is Netflix Adding Ads?
Ad-supported, lower-priced subscription tiers may be available to users in the last three months of 2022, company executives told employees in May 2022.
Netflix has famously been highly resistant to placing advertising on its platform. However, Netflix co-CEO Reed Hastings has recently commented that ads would be tested in the “next year or two.” He mentioned that Netflix ads could include “pre-roll ads, which run before a show starts,” and eventually ads on “program tiles on the home screen.”
The marketplace for ad-supported streaming is booming, with a 57% jump in connected-TV ad spending in 2021 compared with the prior year.
Streaming rivals like Disney+ and HBO Max have begun using ads to complement their subscription revenue.
For example, Disney+ has a cheaper plan in the works, and HBO Max with Ads offers a $10 a month subscription and promises only about four minutes of ads per hour.
Other new players like Peacock, Paramount+, and Discovery+ have ad-supported and ad-free subscription plans.
Amazon Prime Video also now runs commercials during live sports. This trend leaves Apple TV+ and Netflix as two major ad-free streaming services in 2022.
Netflix Users Pay for Password Sharing
One of the biggest challenges Netflix faces with password sharing is that the subscription services are listed as ‘per household.’ However, with the global nature of streaming, it is very easy for family and friends to share a virtual household and their Netflix streaming passwords.
Netflix estimates that as of 2022, over 100 million households worldwide are using a shared password, including 30 million in the U.S. and Canada.
Alongside increasing revenue through advertisements, Netflix revealed a new plan to fight password-sharing in March with an extra fee of about $3 a month for users who share accounts.
The password sharing fee was set to roll out first in Chile, Costa Rica, and Peru.
Can a Business Advertise on Netflix?
Most streaming services allow you to buy advertising space directly or through their programmatic advertising partner. Although Netflix is yet to roll out advertising, it is currently available via some competitive services.
Program advertising on streaming services allows for automated ad buying based on budget, similar to PPC advertising on Youtube and Google. Advertisers can choose specific demographics, locations, and other preferences.
For example, Hulu advertising costs averaged around $30-40 per every thousand impressions. Recently, advertising rates have dropped and are closer to $20 per million.
Buying direct from streaming service providers also often guarantees your placement.
Netflix has mentioned introducing a lower-cost plan with advertising (similar to Hulu and HBOMax with Ads). Once this service is introduced, it will be more apparent how much it costs to advertise on Netflix.
Netflix Could See A Revenue Boost
From an investor’s point of view, Netflix advertising may be a boon for revenue growth. Disney+ will generate an estimated $1.8 billion in U.S. ad revenue by 2025 from its forthcoming ad-supported streaming tier. Current estimates show that Netflix could increase revenue by $1.2 billion once it includes advertising as another revenue source.
Of course, as an innovator and market leader in streaming services, Netflix will test the best delivery methods and create a seamless advertising experience. In time, advertising inside streaming services will become a norm, and consumers will pay a premium to enjoy ad-free streaming.
