Netflix yesterday reported its financial results for the fourth quarter of 2022, with more than 230 million global subscribers, up from 223.09 million, thanks to the addition of 7.7 million subscribers. During the earnings call, Netflix co-CEO Ted Sarandos said the company is “keep an eye” on a free ad-supported TV (FAST) option, a move many media companies are considering as more consumers switch to FAST services.
“We’re open to all these different models that are out there right now, but we have a lot on our plate this year, both with the paid sharing and our ad launch and continuing with this range of content that we’re trying to bring to our members. So we’re definitely keeping an eye on that segment,” Sarandos said.
While a Netflix FAST channel offering isn’t likely to happen any time soon, Sarandos isn’t ruling out the possibility of one coming in the future. When and if Netflix goes ahead with a FAST option, the move will most likely boost its advertising business significantly. According to nScreenMediaby 2023, the FAST industry will reach 216 million monthly active users, generating $4.1 billion in ad revenue.
Netflix is known to be slow to follow industry trends. It took former co-CEO Reed Hastings, who just announced he was stepping down, many years to even consider launching a lower-cost ad-supported plan. Hulu is the third oldest streaming service next to Netflix and Amazon Prime Video (formerly Amazon Unbox) and has offered a level of advertising for over a decade.
Netflix is counting on its advertising activities to be a major source of revenue. In general, treasure it $8.17 billion in revenue for Q1 2023.
However, it looks like Netflix’s ‘Basic with Ads’ subscription isn’t delivering as much as expected, according to a recent Kantar report. Despite the company being pleased with the growth of its advertising business, as Jeremi Gorman, Netflix’s President of Worldwide Advertising, noted during an interview at Variety’s Entertainment Summit at CES, data from Kantar shows that Netflix’s “Basic with Ads” is now good for 12% of its subscriber base. While Netflix intended the new tier to entice new subscribers, it seems only a few current customers have moved on to the $3 plan.
In yesterday’s letter to shareholders, Netflix wrote that the launch of its ad-supported tier was successful; however, the company admitted that it “had a lot more to do”.
It’s likely that more subscribers will consider the cheaper tier as the company adds all of its content to the plan. As of now, 85% to 95% of Netflix’s content is available. The company is currently renegotiating deals with studios.
Also, the ad level is not available in every region. Ads Base is only available in the US, UK, France, Germany, Spain, Italy, Australia, Japan, Korea, Brazil, Canada and Mexico. The company has no immediate plans to expand, but it does have plans to target larger advertising markets in the future.
Netflix CFO Spencer Neumann said on yesterday’s earnings call, “We wouldn’t get into a business like this if we didn’t believe it could be greater than at least 10% of our sales and hopefully much more over time in that mix as we increase.”
Overall, the company admits that “2022 has been a tough year,” Netflix wrote in its letter to shareholders. The streaming giant experienced two painful quarters in 2022 and lost more than a million subscribers worldwide.
In the fourth quarter, the company reported $7.85 billion in revenue, adding to the recent trend of slowing revenue growth. By comparison, the company brought in $7.93 billion in Q3 2022 and $7.97 billion in Q2.
“We believe we have a clear path to accelerate our revenue growth again: continue to improve all aspects of Netflix, launch paid sharing and expand our advertising offerings,” the company added in yesterday’s letter.
This year and beyond will be a pivotal time for Netflix. The company will launch its password sharing and live streaming offerings in 2023.