Netflix Is Telling Advertisers That Signups for Its New Tier Are Way Up … But How Much Up?
Netflix reportedly told its ad customers that signups were picking up for its new, partially ad-supported tier, with usage for the $6.99 plan doubling in January from November, the month the tier launched.
The source of this, uh, information — an insider report from The Information (opens in a new tab) — didn’t reveal any specific signup numbers, though. And Netflix itself was mum two weeks ago on its fourth quarter earnings call, saying in its quarterly letter to shareholders (opens in a new tab) that it’s still “beginner” for its “Basic” level with advertising”.
According to The Information, Netflix earlier told advertisers that it expects to sign up 1.75 million users to the new plan by the end of the first quarter. This would represent approximately 2.4% of its North American subscriber base.
It could be a litter. Here’s why:
Even the task of performing back-of-the-napkin calculations to estimate the number of consumers we are talking about at this point is really difficult, but we are undoubtedly still talking about very low numbers.
Netflix launched Basic with Ads in early November in the US, UK, France, Germany, Italy, Australia, Japan, Korea and Brazil – a small number of countries from its global footprint of 190 country, but its largest markets, nonetheless. Let’s say, for the purposes of this very difficult exercise, that these markets collectively account for half of Netflix’s impressive total of 7.66 million global customer additions in the fourth quarter.
(Netflix has suggested that the number of existing subscribers upgrading to the cheaper, ad-supported tier has been minimal, so we’ll exclude that from our very rough estimate.)
And if we assume that one-third of that very, very rough estimate of 3.83 million customer additions in those regions in the three-month period of Q4 happened in November, we get 1, 27 million.
Venturing further down this rabbit hole, we take research firm Antenna’s report from late last year suggesting that first-month signups for Netflix Basic with ads were only around 9% of signups. .
We have approximately 115,000 registrations left in the first month for the new ad tier. Again, this is all really blurry. But even doubling that initial rate of expansion – which is likely high – suggests that Netflix will need to reach 1.75 million customers for the new level by the end of March.
Missing those targets is significant for a Netflix advertising business that the company says will soon be bigger than Hulu’s.
Notably, Digiday reported in mid-December that Netflix missed delivery targets on ad inventory and ended up having to reimburse advertisers.
Again, Netflix remains publicly bullish.
“Overall, the reaction to this launch from consumers and advertisers confirmed our belief that our ad-supported plan has strong unit economics (at least, in line with, or better than the comparable ad-free plan) and will generate incremental revenue and profit, although the impact in 2023 will be modest given that it will grow slowly over time,” the company said in its letter to shareholders.