Netflix is entering the “walk” phase of ad monetization.
Its overall revenue grew 16% to $10.2 billion last year thanks to subscriber and ad revenue growth, with operating margins up 27%. Netflix added 19 million subscribers in the fourth quarter alone, far surpassing Wall Street’s expectations of 9.8 million and bringing its total to 302 million global subs.
Sign-ups are spiking because more people are subscribing to Netflix’s ad tier to save money – and because Netflix has been kicking moochers off of shared accounts for more than a year.
“2025 is the year we transition from the ‘crawl’ to ‘walk’ phase,” Netflix Co-CEO Greg Peters told investors, referring to ad monetization, during the company’s Q4 earnings call on Tuesday.
Netflix doubled its annual ad revenue last year, and “we expect to double it again this year,” Peters said.
Making money moves
For Netflix, the “crawl” phase involved growing its ad-supported member base enough to satisfy advertisers.
But since first launching ads in November 2022, “we have done the work to meet our scale goals for advertisers,” Peters said, noting that more than 55% of new subscribers last quarter signed up for the ad-supported tier. For reference, that reported number was 50% in October and 40% in April.
Because Netflix is now comfortable with its scale in terms of ad inventory and reach, “we’ve been able to shift more of our focus to making our offering better for advertisers,” Peters said.
Serving advertisers “is going to remain a priority and part of our road map for years to come,” Peters said.
Netflix’s ad stack
For Netflix, a big part of transitioning its ad business from the “crawl” to the “walk” phase is “standing up our own ad stack,” Peters said.
Netflix first announced plans to build its own ad tech stack in May and initially tested the platform in Canada. Now, all of the streamer’s ad serving in Canada is done in-house.
The new in-house ad platform will launch in the US in the next couple of months.
According to Peters, Netflix’s ad platform should improve the media buyer experience by increasing flexibility while also cutting down on the number of programmatic hops. Agencies and brands, for example, can buy Netflix inventory directly through their choice of The Trade Desk, Google’s DV360, Magnite or Microsoft, Netflix’s original ad sales partner.
Having control over its own ad serving technology also allows Netflix to give advertisers “more data sources, more measurement and more incrementality reporting,” Peters said, in addition to wider programmatic availability. Better data should improve the user experience, too, with more relevant ads while also boosting ad sales for Netflix, he added.
In the meantime, Netflix is jacking up its prices. Its ad-free standard and premium plans now cost $2.50 and $2 more per month, respectively, while the ad-supported plan is up $1 per month to $7.99. It’s the first time Netflix is raising the cost of its ad tier.
Peters acknowledged that Netflix has “considerable work” ahead in terms of maximizing ad monetization. “But we think our path is straightforward,” he said, “and we have significant runway to continue growing [ad] revenue.”
