For years, top Netflix executives insisted that the platform would always remain free of ads. But in the fast-moving world of tech and entertainment, being able to change company policies as per requirements is a necessity. So while many viewed Netflix’s decision to introduce an ad-supported tier with skepticism, the decision turned out to be a savvy business move. During Netflix’s earnings conference call yesterday, the company said that ad revenue on the platform during the most recent quarter set a new record.
Not only that, but if the current trajectory stays put, Netflix co-CEO Greg Peters said that ad revenue for the year is poised to be double that of 2024. What’s more, Peters added that the rate of ad deals with corporate buyers is accelerating and that the streaming giant is seeing a boost in ad revenue as the company adds more avenues for ad buys and metrics for performance analysis. Peters further said that Netflix, later this year, will introduce interactive ads and experiment with different ad formats. Revenue for the September quarter came in at $11.5 billion, an impressive 17% increase year over year.
Netflix’s proven ability to admit when it’s wrong
One of the reasons behind Netflix’s success is that the company isn’t afraid to adjust its business model on the fly. We saw this early on when Netflix began pivoting away from its incredibly popular and lucrative DVD-by-mail service to focus on digital video. Back in 2015, Netflix ran a little test where it added skippable promos for its own original programming between episodes of popular shows. Consumers were so outraged that Netflix CEO Reed Hastings, in response to the controversy, penned a Facebook post where he emphatically stated: “No advertising coming onto Netflix. Period.” During an interview five years later, Hastings even explained why Netflix will never have commercials.
But to Netflix’s credit, it prioritizes good business strategy over unbendable business axioms. In November 2022, Netflix introduced an ad-supported tier. The tier — affordably priced at just $7.99 per month — makes sense precisely because the pricing on Netflix’s ad-free tiers has shot up quite a bit in recent years. These days, Netflix’s standard ad-free plan costs $17.99 a month while the 4K + HDR plan, which also offers support for more devices, costs $24.99 a month. By implementing an ad-supported tier, the company has created a pricing matrix that encompasses all viewers and keeps subscribers from running away to cheaper streaming alternatives.
