That’s a wrap for Netflix’s first full fiscal year with an ads business.
And, luckily for Netflix, its first livestreamed earnings call on Tuesday didn’t fail.
Netflix finished 2023 with a 12.5% jump in revenue year-over-year thanks to subscriber growth, a far cry from the mere 2% YOY revenue increase it reported this time last year.
The streamer credits more subs for this year’s revenue spike, CFO Spencer Neumann told shareholders during the earnings call. It grew its member base by 12.8% YOY, compared to just 4% last year.
It may take years for ads to have a material impact on revenue, according to Co-CEO Greg Peters, but Netflix’s ad-supported plan is helping boost subscription growth, in part because the platform kicked more moochers off shared accounts throughout the course of last year. (Can confirm from firsthand experience.)
Netflix currently has 23 million monthly active users (up from 15 million in November), “and we see that [number] continuing to grow in the quarters ahead,” Peters said. Netflix still won’t disclose how many new users come from shared accounts, but Peters said the company expects anti-password sharing to continue driving subscriber growth “for years ahead, not just 2024.”
Coming to you live
Other than nudging people to sign up for ads, Netflix also expects to win new subscribers with content – namely, live programming.
Shortly before dropping its quarterly earnings report on Tuesday, Netflix agreed to pay $5 billion for the airing rights to livestream WWE “Raw,” signifying its commitment to add more live programming to its regular content slate.
Live programming “should add fuel to our new and growing ads business,” said Co-CEO Ted Sarandos. The plan is for live entertainment to attract both new subscribers and advertisers that want to reach the growing number of people turning to AVOD for appointment viewing.
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But advertisers need to see more than just an uptick in subscriber numbers to justify investing more in the platform.
Growing the scale of its ad tier has been Netflix’s biggest priority, Peters said. But its second top order of business is improving its ad capabilities, such as targeting, measurement and new ad formats, although he didn’t share many specifics.
He did mention that Netflix will roll out pause ads this quarter, which display after a viewer pauses a stream for at least five seconds, as well as binge ads that gift viewers an ad-free episode in exchange for watching a sponsored message.
Peters also specifically called out that Netflix still has “tons to do” to improve measurement.
Additionally, he confirmed that Netflix is in the midst of building some of its own ad tech and ad sales teams so it can better serve advertiser needs, according to Peters.
“We’re already – in partnership with Microsoft – developing part of the technology that supports our ads experience,” Peters said. “We’re [also] building out our own teams to cover a portion of the sales and operations activities.”
Better together
In the meantime, another near-term growth opportunity is, of course, bundles.
Netflix’s ad-supported tier is part of new bundle offers from broadband companies, including T-Mobile and Verizon. These deals will get Netflix’s ad offering in front of new viewers who haven’t cut the cord (yet), which should help Netflix grow both AVOD sign-ups and ad revenue.
When it comes to Netflix’s ads plan, “a lower consumer facing price [gives us] room to bundle the plan into a set of lower-priced partner offerings,” Peters said, whereas bundling Netflix’s more expensive ad-free plans into a discounted bundle offering could negatively impact revenue.
“We’re going to continue [pursuing] bundles going forward,” Peters said.
Wonder who’s next.
