The news: Netflix released its Q3 results on Tuesday after the bell and shared considerable information about its forthcoming ad-supported format.
- Analysts expected the platform would add 1 million subscribers; instead, the company netted an increase of 2.41 million—more than doubling its guidance from one quarter before.
- Asia-Pacific accounted for 1.43 million new customers; US and Canada, however, combined for just 100,000 new accounts.
- Wall Street consensus forecasts compiled by Bloomberg called for revenue of $7.85 billion and $2.22 EPS; instead, the company netted $7.93 billion and $3.10 EPS.
Looking ahead: As attention shifts toward the platform's planned ad-supported tier, advertisers are naturally placing less weight on the company's subscriber figures than in past quarters; instead, they’re paying attention to how the new tier will affect the advertising world.
- It will cost $6.99 a month for Basic with Ads and become available to US customers on November 3; soon thereafter, the plan will be launched in markets like the UK, Canada, Mexico, South Korea, and Japan.
- It’s true that some full-price subscribers may switch to the ad-based tier, particularly given today’s inflationary environment, though executives have publicly dismissed that speculation as overblown.
The Disney comparison: It’s hard to overlook Netflix launching its lower-priced plan with ads at the same time Disney+ is adopting ads. Both ad plans have something in common: Each streamer is pledging to run just four to five minutes of ads every hour while refraining from placing spots in kid-friendly programming.
- Netflix still has some issues to fix: Its ad-supported tier won't initially include all of the service’s programming, which may be its most obvious flaw. Licensing issues are to blame, and Netflix has highlighted this as a problem it plans to solve—but that doesn’t make it any less of an Achilles heel at launch.
- Basic with Ads has other limitations: a 720 HD stream limit and one device restriction on playback. Users interested in 1080 HD and support for multiple devices must pay for the $15.49 per month ad-free Standard tier; 4K is only accessible to customers who pay $19.99 per month. The $7.99 Disney+ ad-supported tier comes bundled with multiple device streams, supports 4K, and includes all the platform’s content.
Why it matters: The stakes are immense for Netflix—and the advertising world in general.
The big takeaway: Advertising brings in customers that previously wouldn't have considered Netflix at full price; the ad-supported tier allows those consumers to give the platform a second look.