Back in 2022, Netflix introduced an ad-supported tier, an affordable subscription plan that includes ads. Initially, I wasn’t sure if this was the right move, but it has proven to be a major success. In the third quarter of 2024, Netflix added 5.1 million new subscribers and more than 50% of new sign-ups came through the ad-supported plan in available markets. These numbers are crucial at the time when Netflix is shifting its focus from just gaining subscribers to growing revenue and profit.
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Netflix’s recent earnings report gave us a glimpse of how this ad-supported tier is doing well for the streaming platform. In countries where the free tier is available, over 50% of new signups came through it. This shows that people agree to see ads if they can pay less for the subscription. So, the company has found a new way to attract more users and generate money from ads. Even if these subscribers are paying less for subscriptions, they are helping Netflix earn by watching ads. For now, Netflix is building up its ad business slowly. So, Ad revenue won’t become a major source of revenue until 2026.
Netflix’s revenue reached $9.825 billion in Q3, which was slightly above expectations. The operating margin also improved from 22% last year to 30% this year. This shows that Netflix is making more money per user.
The company also confirmed that it will stop reporting its total subscriber numbers starting in 2025. Its primary focus will be revenue growth and profit margins. The reason for this shift is that Netflix’s subscriber growth has slowed in mature markets like the U.S. Most people who are interested in streaming platforms already have Netflix subscriptions. Now the company wants to show that its business is growing even if new subscriptions aren’t growing as much.
The company is betting on big shows and international content to attract more viewers globally. It is making local-level strategies in different countries for growth. Netflix is also experimented with live events. For example, in November, Netflix will stream a fight between YouTube star Jake Paul and Mike Tyson. It will also show NFL games on Christmas Day. Live events are expected to bring more viewers and attract advertisers. This will surely help Netflix boost revenue from ads and get more signups.
Although Netflix is seeing success with its free tier, its top markets are becoming saturated. This is the reason the company has started raising prices in countries like Spain, Italy, and Japan. Price increases are a way to boost revenue, but they also come with a risk of losing subscribers. This is where the ad-supported tier will come into action. In the coming months when the company will have a proper ads business and big advertisers, the free tier will become an important part of Netflix’s future growth strategy. In countries like India where most people share Netflix accounts, the ad-supported tier will surely help the company get more signups.
Many Indian consumers are price-sensitive and prefer lower-cost alternatives. If they get the option to enjoy Netflix originals with ads, they will surely prefer watching ads to save some bucks as long as ads are not intrusive. India also has a massive population with a growing number of internet users. So, the company has a good chance of growing well in the country with an ad-supported tier.
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