Ampere: Netflix to Earn Additional $2.2 Billion with Ad Tier

Ampere Analysis is projecting that Netflix’s launch of an ad tier will see it earn $2.2 billion more by 2027 than it would by continuing with a subscription-only model.

The new study forecasts $1.7 billion from advertising in the U.S. market alone over the next five years. The U.S. is expected to be the largest single contributor to a global advertising income of $5.5 billion by 2027, boosted to $8.5 billion a year by ad-tier subscription fees.

Specifically, the ad tier is projected to increase the group’s revenue by 4.9 percent in 2023 and 7.1 percent by 2027.

Assuming that the ad tier launches at $5.99 in the U.S., with pricing adjusted on a relative basis globally, and based on price elasticity analysis, Ampere predicts that the ad tier will see a 3.2 percent subscriber uplift, with the remainder of ad tier customer migrating from the existing customer base.

Using ad tolerance and price sensitivity data from Ampere’s consumer survey, the firm estimates that one in five Netflix users will be on the ad tier by 2027. In addition, most of the ad-tier customers will come from the existing customer base. Therefore, the report concludes, the ad tier will serve to stabilize the more saturated markets of North America and Western Europe.

Ben French, analyst at Ampere Analysis, said: “The ad tier is primarily a customer retention tool in the U.S., with sign-ups coming largely from Netflix’s existing subscriber base. The U.S. ad tier will be an effective measure against a shrinking and less engaged audience rather than a new customer acquisition tool. Increasing advertising rates will grow total ad income over time, offsetting the negative impact of a fall in viewing.”