The Coming Netflix Ad Machine

Seven big questions re: Netflix ad business:
1) When is Netflix launching its ad-supported offering?
2) How much will Netflix charge for the ad-supported offering?
3) How many streaming subscribers does Netflix have?
4) Where is the growth coming from?
5) How much money do they currently make from each streaming subscriber?6) Will ad-supported subscribers generate more revenue than ad-free?7) What share of streaming viewership does Netflix account for?

Big question #1: When is Netflix launching its ad-supported offering?

Quick answer: November 3rd

Big question #2: How much will Netflix charge for the ad-supported offering?

Quick answer: $6.99/month

Key details for Netflix Basic with Ads plan:
1) Launches November 3rd  in the U.S.
2) $6.99/month
3) 720P resolution
4) No downloads
5) 4-5 minutes of ads/hour

Video: Netflix pre-roll ad demo

Netflix is launching ads in 12 countries:
1) Australia
2) Brazil
3) Canada
4) France
5) Germany
6) Italy
7) Japan
8) Korea
9) Mexico
10) Spain
11) United Kingdom
12) United States

Big question #3: How many streaming subscribers does Netflix have?

Netflix subscribers by quarter (YoY growth):
1) 2015-Q3 – 69.2M     
2) 2016-Q3 – 86.7M (↑ 25%)
3) 2017-Q3 – 104.0M (↑ 20%)
4) 2018-Q3 – 130.4M (↑ 25%)
5) 2019-Q3 – 158.3M (↑ 21%)
6) 2020-Q3 – 195.2M (↑ 23%)
7) 2021-Q3 – 213.6M (↑ 9%)
8) 2022-Q3 – 223.1M (↑ 4%)

Big question #4: Where is the growth coming from?

Netflix subscriber growth (% of total):
1) International – 2.3M (95%)
2) U.S./Canada – 110K (5%)
3) Total – 2.4M

Netflix subscribers (% of total):
1) International – 149.7M (67%)
2) U.S./Canada – 73.4M (33%)
3) Total – 223.1M

Big question #5: How much money do they currently make from each streaming subscriber?

Monthly ARPU for Netflix in U.S./Canada (YoY growth):
1) 2020-Q3 – $13.30
2) 2021-Q3 – $14.68 (↑ 9%)
3) 2022-Q3 – $16.37 (↑ 12%)

Big question #6: Will ad-supported subscribers generate more revenue than ad-free?

Quick math on the advertising model for Netflix:
1) Ad minutes/hour – 4.5
2) 30s spots/hour – 9
3) CPM $ – ≈ $80
4) $/spot – $0.08
5) Ad revenue/hour – $0.72
6) ARPU > $9.99 @ 4.2 hours ($6.99 + $3.00 = $9.99)

Mr. Screens Crystal Ball: The average Netflix subscriber watches ≈ 2 hours per day.  Ad-supported Netflix users will quickly generate more revenue than ad-free users.  They are going to crush it!!!

Estimated 2025 Netflix ARPU in U.S./Canada according to Wells Fargo:
1) Ad-supported – $20.87
2) Ad-free – $19.11
3) Average – $19.63

Quote from Ashwin Navin – CEO @ Samba TV:“It’s going to be the most new inventory for TV content ever introduced at one time.  These companies collectively represent a massive amount of premium video that until now has been off the market [for advertisers]. It’s a watershed moment.”

Big question #7: What share of streaming viewership does Netflix account for?

Quick answer: Netflix accounts for 8% of total TV time and 22% of streaming TV time.

Quote from Lucas Shaw – Reporter @ Bloomberg:“Streaming’s share of total TV time reached a new high this summer and now accounts for about 35% of total TV viewing in the US. That means 65% of viewing is still locked into linear TV and will gradually shift to the internet. Netflix’s primary challenge is to capture as much of that viewership as possible.”

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