Netflix has reported its Q4 2022 financial results, boasting a significant milestone of over 230 million global subscribers. This impressive number is up from the previous quarter’s 223.09 million subscribers, thanks to the addition of 7.7 million new subscribers.
During the earnings call, Netflix co-CEO Ted Sarandos mentioned that the company is keeping an eye on the trend of free ad-supported TV (FAST) options, which many media companies are considering as consumers increasingly shift towards FAST services.
"We’re open to all these different models that are out there right now," Sarandos said. "But we’ve got a lot on our plate this year, both with the paid sharing and with our launch of advertising and continuing to drive this slate of content that we’re trying to deliver to our members."
While it seems unlikely that Netflix will introduce a FAST channel offering in the near future, Sarandos is not dismissing the possibility entirely. When and if the company does decide to enter the FAST market, it’s likely that their ad business will experience significant growth.
The FAST Industry: A Growing Market
According to ScreenMedia, the FAST industry is projected to reach 216 million monthly active users in 2023, generating $4.1 billion in ad revenue. This is a clear indication of the growing demand for free ad-supported streaming services.
Netflix’s Ad Business: A Growing Source of Income
As Netflix continues to expand its ad business, it expects this segment to become an increasingly significant source of income. The company estimates that its ad business will bring in $8.17 billion in revenue for Q1 2023.
However, despite the growth of its ads business, Netflix’s ‘Basic with Ads’ plan has not been as successful as anticipated. According to a recent Kantar report, the new tier now accounts for only 12% of its subscriber base, which is lower than expected.
Challenges Ahead
Netflix’s ad business faces several challenges, including the limited availability of content on the ‘Basic with Ads’ plan and its restricted accessibility in certain regions. The company has stated that it plans to expand the ad tier to more countries but has not provided a specific timeline for this expansion.
Long-Term Strategy: A Focus on Growth
Despite the challenges, Netflix remains committed to growing its ad business. In yesterday’s earnings call, CFO Spencer Neumann emphasized the company’s confidence in the potential of its ad business, stating that it is expected to contribute at least 10% of revenue and potentially much more over time.
A Pivotal Year for Netflix
As the company continues to navigate the ever-changing media landscape, Netflix faces a pivotal year ahead. The launch of its password-sharing offering and the expansion of its ad business will be key drivers of growth for the company.
In conclusion, while Netflix’s ‘Basic with Ads’ plan has not been as successful as anticipated, the company remains optimistic about the potential of its ad business. With over 230 million global subscribers and a growing market for free ad-supported TV options, Netflix is well-positioned to capitalize on these trends and continue its growth trajectory.