Netflix shifts focus to ad-supported tier as subscriber growth surges

Netflix is phasing out its cheapest ad-free plan in Canada and the UK, with plans to do the same in the U.S. and France.

Driving the news. Netflix added 8 million global subscribers in Q2, with its ad-supported plan gaining significant traction.

The budget-friendly tier now accounts for over 45% of new signups in markets where it’s available, signaling a potential shift in Netflix’s business model.

• The company is also testing pause ads, which appear when viewers stop watching.

Why we care. A higher proportion of subscribers are moving to the ad-supported tier, increasing the available ad inventory and creating more opportunities for advertisers to reach a broader audience.

By the numbers. Netflix reported strong Q2 2024 results, surpassing projections with significant growth in revenue, profits, and subscribers.

• Revenue: $9.56 billion (up 17% YoY)
• Net income: $2.15 billion (up 44% YoY)
• Global subscribers: 277.65 million (up 16.5% YoY)

What they’re saying. “Our ad revenue is growing nicely and is becoming a more meaningful contributor to our business,” Netflix stated in its earnings report.

Between the lines. Netflix is scaling faster than its ability to monetize growing ad inventory, presenting both a challenge and opportunity.

What’s next. Starting next year, Netflix will change how it reports growth, focusing on revenue by region instead of subscriber numbers.

Yes, but. The company warns of slower subscriber growth in Q3 2024 as the impact of paid sharing diminishes.

The big picture. This shift “reflects the evolution of the business” as Netflix prioritizes advertising and subscriber retention.