New Ad-Supported Tier Is A Hit

Netflix may be regretting waiting so long to roll out an ad-supported tier. Based on its performance in fourth quarter, the new service is a blockbuster.

Reporting its fourth quarter earnings on Thursday, NetflixNFLX
said it had added 7.7 million subscribers, well above expectations for the streaming service and three times the number it added in third quarter. That brought its total to 230.8 million subscribers worldwide.

The streamer credited part of that accelerated growth to the introduction of a lower-priced, ad-supported tier in November, something the company had long resisted under Co-CEO Reed Hastings.

It’s tempting to read something into it, but around the same time Netflix released its earnings data, Hastings said he is stepping down from running the company he co-founded and transitioning to executive chairman. There’s sure to be lots of speculation over why (Hastings said in a blog post announcing his exit that it had been in the works for a while), and his apparently misplaced disinterest in advertising could be seen as a reason.

But back to the numbers: Netflix had said before the earnings call, likely to quell expectations, that it didn’t expect the ad-supported tier to make an appreciable impact on fourth quarter. It projected a gain of 4.5 million subscribers. Clearly the ad-supported tier did contribute to gains, though Netflix declined to saw exactly how many new subscribers were to the ad-supported tier.

Still, a report released today by Ampere Analysis says that daily subscription signups shot up by more than 50 percent during the first few days the ad-supported tier was available. Netflix had its best signup rate during that time (Nov. 3-5) since the start of the pandemic in April 2020. Almost 10 percent of new customer signups are now for the ad-supported tier, the report found.

The bigger numbers came at a time when the streamer needed the shot in the arm.

Netflix lost subscribers during first and second quarters last year before rebounding a bit in third quarter. Everyone had a theory on the declines, the first in a decade for the longtime streaming leader, which (depending how you crunch the numbers) has fallen behind Disney’s Disney+ streaming service in total subscribers—though Disney also counts ESPN+ and Hulu in those subs, so the claim is murky.

Some people blamed Netflix’s big price increase for the subscriber decline. Others pointed to inflated gains during COVID that could never last when the lockdowns lifted. The streamer claimed that password sharing was eating into subscribers, and it has pledged to crack down on that in 2023.

As for Netflix’s other numbers, it fell a little short on revenue, with $7.85 billion vs. projects of $8.1 billion. It marked its slowest growth since 2002, up 1.9% from last year. Earnings per share were also well below what had been projected. Netflix had said in third quarter’s earnings release that it would focus more on revenue as its top metric going forward rather than subscribers—but after today’s results, you’d expect the company to walk that back a bit.

Among other highlights of the earnings release, Netflix said Wednesday ranks as its No. 3 series of all time, while Glass Onion: A Knives Out Mystery is its fourth-most-popular film ever. And the documentary Harry & Meghan is the second-ranked doc of all time on the service, capitalizing on the release of Prince Harry’s popular memoir, Spare.