Sep 7, 2022 - Economy & Business

Streaming platform moves to ad-supported tiers will come at a cost

Data: Nielsen; Note: "Other streaming" includes sources like Twitch, Pluto, Starz, and Showtime; Chart: Nicki Camberg/Axios

Netflix is in the midst of a transformation that sees it cutting jobs, real-estate and other costs while investing in a new ad-supported tier that could launch by as soon as the end of the year. What's unclear is whether those ads will offset the massive costs to get there.

Driving the news: A new Bank of America research report out today outlines the trade-off streaming platforms have to make as they incur new costs to build ad-supported platforms.

What they're saying: Most companies plan to keep ads to a minimum early on to keep viewers happy and gain new subscribers, the analysts write.

  • Over time, they see the number of ads increasing to maximize average revenue per user and profitability.

Be smart: Subscriber numbers are the most often cited metric in the industry. But the amount those subscribers are consuming content on specific platforms show another key datapoint for the viability of ad-supported platforms.

  • Netflix is still the dominant streaming platform in terms of daily consumption. However, rivals like YouTube and Hulu also have significant market share, and both are well-versed already in ad-supported models.

The big picture: Streaming officially overtook cable as the most popular form of TV viewing in July.

  • But the format still lags behind total traditional TV viewing when cable and broadcast consumption are looked at together.

What to watch: Netflix wants to reach as many as 500 million customers around the world within the next three years, according to WSJ.

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