Netflix has reportedly told its advertising clients that sign-ups are perking up for its new partially ad-supported tier, with uptake for the $6.99 plan doubling in January vs. November, the month the tier launched.
The source of this, er, information — an insider report from The Information — did not, however, reveal specific numbers regarding signups. And Netflix itself was mum two weeks ago during its fourth-quarter earnings call, saying in its quarterly letter to shareholders that it’s still “early days” for its “Basic with Ads” tier.
According to The Information, Netflix told advertisers earlier that it expected to sign up 1.75 million users to the new plan by the end of the first quarter. This would account for roughly 2.4% of its North American subscriber base.
That might be a reach. Here’s why:
Even the task of performing back-of-the-napkin math to guesstimate how many consumers we're talking about at this point is real challenging, but we're undoubtedly still talking about very low numbers.
Netflix launched Basic with Ads in early November in the U.S., U.K., France, Germany, Italy, Australia, Japan, Korea and Brazil — a small number of countries from its 190-nation global footprint, but its biggest markets, nonetheless. Let's say, for the purpose of this super-rough exercise, that those markets collectively account for half of Netflix’s impressive overall 7.66 million global customer additions in Q4.
(Netflix has suggested that the number of existing subscribers jumping to the cheaper ad-supported tier has been minimal, so we'll exclude that from our profoundly rough estimate.)
And if we assume that a third of that very, very rough estimate of 3.83 million customer additions in those regions in the three-month Q4 period occurred in November, we get 1.27 million.
Venturing further into this rabbit hole, we take research company Antenna’s report from late last year suggesting that first-month signups for Netflix Basic with Ads accounted for only around 9% of enlistments.
We're left with around 115,000 first-month signups for the new ad tier. Again, this is all really fuzzy math. But even doubling that initial expansion pace — which is probably on the high side — suggests Netflix will have to reach to get 1.75 million customers for the new tier by the end of March.
Missing these goals matters to a Netflix advertising business that the company believes will soon be bigger than Hulu’s.
Notably, Digiday reported in mid-December that Netflix missed delivery targets on ad inventory and ended up having to give money back to advertisers.
Again, Netflix remains publicly bullish.
“Overall the reaction to this launch from both consumers and advertisers has confirmed our belief that our ad-supported plan has strong unit economics (at minimum, in line with or better than the comparable ad-free plan) and will generate incremental revenue and profit, though the impact on 2023 will be modest given that this will build slowly over time,” the company said in its shareholder letter. ■
