Netflix may get more revenue per customer with a cheaper advertising model

By AdNews | 14 September 2022
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The revenue returns to Netflix and Disney+ from an advertising-supported subscription tier may be greater than current ad-free models.

Oliver Eklund, a researcher at QUT's Digital Media Research Centre, says there is evidence from other streaming platforms, such as Hulu and Discovery+, that advertising tiers can generate greater average revenue per user (ARPU) than higher priced subscription.

Eklund says revenue from a subscriber can be driven by increasing subscription prices, driving subscribers to more expensive tiers, reducing business costs, or by adding additional revenue streams such as advertising.

In 2021, Discovery CEO David Zaslav noted that Discovery+ was generating more revenue per subscriber from a cheaper ad-supported tier than more expensive subscription-only tier thanks to the advertising revenue.

Zaslav commented that advertisers were keen to reach an audience that was largely not accessible through other television means.

“With this in mind, Netflix and Disney are betting that their ad-supported tiers can perform similarly and increase the revenue they can generate per subscriber,” writes Eklund.

“There is experimentation across the streaming industry in licensing strategies, spectacle television, pricing models and beyond. The results of this experimentation will take time.

“But what the arrival of advertising on Netflix signals is that established strategy no longer rules the streaming landscape.”

Subscribers will pay less per month than current ad-free servcie but the totla return to netflix will also include ad dollars.

Ad buyers report that Netflix plans to charge top dollar, and substantially higher than other streaming platforms, for space on its coming ad-supported subscription tier.

The Wall Street Journal reports Netflix is seeking to charge advertisers about $US65 per CPM, or cost per thousand.



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