Netflix shares surged nearly 10% on Thursday after it announced details of a new ad-backed tier that suggested the business model was starting to pay off.
The company announced this week that its inexpensive ad-supported option has 5 million monthly active users, with 25% of new subscribers signing up for this tier in regions where it’s available.
The update was announced Wednesday during Netflix’s first pitch to advertisers, where the company participated in the industry’s so-called Upfront presentation for the first time. This year, the following top media companies will be participating: comcastNBCUniversal and warner bros discovery The presentation highlighted ad-supported streaming options.
Netflix shares rose Thursday after the company announced new details about its ad-supported streaming tier.
Netflix is launching an ad-based option in the second half of 2022 after membership growth has stalled for several quarters and its share price has fallen.
The company had mixed results in its most recent quarter, but said it added 1.75 million subscribers. Netflix is also preparing to roll out a broader crackdown on password sharing in a new effort to boost revenue.
Media companies, once focused on growing subscribers for fledgling streaming services, are now focused on monetizing their businesses. To do this, some companies are reducing the cost of content spending and relying on advertising models.
When Disney reported its earnings last week, CEO Bob Iger said the company sees ad-supported options for its streaming service Disney+ as another way to help its streaming business achieve profitability. He pointed out that he was considering Disney+ lost 4 million subscribers this quarter.
Netflix’s ad slots cost $6.99 a month and feature 15- or 30-second long commercials before and after content, a reversal for the company’s management, which has long said it won’t run ads on the platform. becomes.
Netflix partnered with Microsoft to launch advertising options. That content will be evaluated by Nielsen later this year to help advertisers better understand its reach.
Shortly after launch, Netflix founder and former CEO Reed Hastings admitted that he was slow to work on advertising on the platform. When Netflix launched ad slots in November, it was $1 cheaper than Disney+ and Hulu’s ad-supported options.
Netflix co-CEO Ted Sarandos said the company will likely offer multiple subscription plans with ads in the future, highlighting the potential for even more subscribers.
— CNBC’s Alex Sherman contributed to this report.