Analyst: Netflix Needs to Consider Ad-Supported Streaming

As Netflix wrestles with saturated subscription streaming markets and slowing subscriber growth worldwide, the SVOD pioneer has thus far refused to consider (along with live sports) ad-supported streaming — despite its market dominance.

New data from eMarketer finds that ad-supported video-on-demand (AVOD) viewers represent close to half of all U.S. internet users. In addition to free ad-supported streaming television mainstays The Roku Channel, Shout! Factory TV, Tubi, IMDb TV and Pluto TV, SVOD platforms Paramount+ and Hulu have incorporated advertising into their lower-cost subscription tiers.

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While linear-TV advertising still dominates the market, connected-TV ad revenue is rising. By the end of 2021, CTV ad spending is projected to increase nearly 60% to $14.4 billion.

That’s money on the table Netflix is ignoring, says Laura Martin, analyst with Needham. Martin contends the streamer should add a lower cost subscription tier with ads as an antidote to streaming fatigue and market saturation.

“Without a lower cost tier, we believe churn will rise in Netflix’s highest ARPU [average revenue per user] markets owing to the ‘digital attention recession’ as global economies continue to reopen over the next 12 months,” Martin wrote in a note.

Netflix has launched lower cost subscription tiers in select markets targeting mobile-only users. The company also bowed a free streaming service in Vietnam.

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