Did you hear that? It was Netflix breathing a sigh of relief, because its ad-supported tier is finally gaining some traction.
Netflix credits its 1-year-old ads business for higher-than-expected subscriber growth. The streamer added 8.8 million members in Q3, compared with just 2.4 million this time last year.
The new password-sharing ban pushed an uptick in paid memberships – and, more importantly, memberships for the ad-supported tier in particular (which was the plan). The ad tier’s subscription base grew 70% since last quarter.
Now, roughly 30% of new members sign up for the ad tier in the 12 countries where the Standard with Ads plan is live.
Growing ad-supported memberships is the “No. 1 priority” for Netflix right now, said Greg Peters during the company’s earnings conference call on Wednesday. “The second priority is delivering features and products that advertisers want.”
Speaking of which, Netflix confirmed in its shareholder letter on Wednesday that it’s “investing in [its] own ad sales team and technical infrastructure to complement Microsoft’s [ad serving] capabilities,” but its execs didn’t share more details during the call.
Turning to advertising
Instead, they talked about measurement.
“Measurement is at the top of the list for advertisers,” Peters said. “We’ve heard it again and again, including at Advertising Week [in New York this week].”
This month, Netflix finally made Nielsen’s Digital Ad Ratings (DAR) for audience measurement available for advertisers. It announced its partnership with the ratings giant when it confirmed plans for its ad tier last year, but it took a year for Netflix to get DAR up and running for its advertisers.
Nielsen’s DAR joins EDO, DoubleVerify and Integral Ad Science on Netflix’s current measurement slate.
Netflix is also working on new ad formats that will become available later this year, including binge ads, which it unveiled during Advertising Week. These are sponsorship deals that let subscribers watch an episode of content without ads after opting to watch a sponsored message.
As for inventory itself, Netflix is working on making it more widely accessible programmatically through Microsoft, Peters said, where it currently has a private marketplace.
On target?
But Netflix stayed pretty tight-lipped about targeting, also at the top of advertisers’ wish lists.
“We’re working with Microsoft right now on targeting, so you’ll see that roll out in the near future,” Peters said, referring to future ad products that should help brands target consumers who are particularly interested in their products.
As far as advertising goes, “we’ve [still] got a lot of work to do here,” Peters said. “This is a multiyear build.”
Speaking of which, Netflix also acknowledged the very recent departure of ad sales vet Jeremi Gorman hardly a year into the job.
“[Gorman] laid the foundation for [our] ads business and hired a burgeoning team of leaders who are going to take the business forward,” Peters said. Netflix also still has Peter Naylor, who was hired at the same time as Gorman. He joined from Snap in September with over 12 years of digital ad sales experience, split between Hulu and NBCUniversal.
Won’t you change your mind?
For now, Netflix is focusing on pushing more subscribers onto its ad offering.
“We’re not satisfied with the scale we have right now [for Standard with Ads],” Peters said. But because anti-account-sharing tactics seem to be working, “we can return to our core approach,” which means raising subscription prices.
Starting Wednesday, Netflix is raising the price of its most expensive ad-free offering in the US from $19.99 to $22.99 per month. It’s also raising prices at the same rate in the UK and France.
Netflix is also phasing out its cheaper (Basic) ad-free plan for new and returning subscribers, starting with the US, UK and Canada. For subscribers who already have that plan, it’s also jumping in price, from $9.99 to $11.99 per month.
Price hikes and anti-account sharing should continue driving more subscribers to Standard with Ads, Peters said.
Netflix is positioned to take a much bigger share of connected TV’s ad dollars, he continued, “but we know we have a lot of work to do to fulfill that potential.”
Still, investors seem impressed for now. Netflix shares jumped 12% during after-hours trading on Wednesday.
