AVOD update: Netflix is focusing on an ad platform to help make up for its stalling growth and revenue losses, but there’s no guarantee that a cheaper, ad-supported option will resolve churn issues.
- Tightening purse strings and more streaming options than ever have prompted consumers to broadly adopt AVOD viewing channels. US AVOD viewership will reach 140.1 million this year.
- Netflix initially said it could take years to launch ads on the platform, but that changed after its rushed announcement was criticized and competitors ramped up their own AVOD plans; Netflix’s announcement that it would partner with Microsoft on an ad platform came just one day after Disney struck a similar deal with The Trade Desk.
Analyst insight: "Netflix's subscriber loss was expected, but it remains a sore point for a company that is wholly dependent on subscription revenue from consumers,” said senior analyst Ross Benes. “Given demand from brands, its advertising product will likely boost average revenue per user eventually. But there's no evidence yet it will lessen opt-outs or meaningfully bring in more subscribers."
The big takeaway: Netflix’s extremely high market penetration means its subscriber growth was bound to stall eventually.
- Marketers will pounce on the opportunity to advertise alongside Netflix’s expansive catalog and reach its hundreds of millions of viewers, but an ad-supported tier may not be enough for Netflix to stanch its losses.