The recent surge in Netflix’s stock price, soaring more than 9% after the announcement of its new ad-supported tier, indicates that the company’s business model is beginning to pay off. The streaming giant reported impressive metrics, with five million monthly active users opting for the cheaper ad-supported option. Notably, 25% of new subscribers were signing up for this tier in areas where it is available. This positive update came as Netflix participated in the industry’s Upfront presentations for the first time, following the footsteps of other media companies focusing on ad-supported streaming options.
Netflix’s decision to introduce the ad-based option in late 2022 appears to be a strategic move to revive stagnating subscriber growth and boost revenue. Despite posting mixed financial results in the last quarter, the streaming service managed to add 1.75 million subscribers. Furthermore, Netflix plans to implement a password-sharing crackdown to further strengthen its revenue stream.
The shift towards ad-supported models among media companies reflects their efforts to make streaming services profitable. By reducing content spending and integrating advertising, companies like Disney and Netflix aim to balance subscriber growth with increased profitability. Netflix’s ad tier, priced at $6.99 per month and featuring short commercials, presents a reversal of the company’s previous stance against ads on its platform.
Looking ahead, Netflix’s Co-CEO Ted Sarandos suggests that the company may introduce multiple subscription plans with ads, indicating potential for further subscriber expansion. With the positive market response and the growing success of its ad-supported option, Netflix appears to be on a promising trajectory, solidifying its position in the competitive streaming industry.
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