Netflix Could Generate $3B From Ads After Its New Deal With Microsoft

Christian Hetrick

Christian Hetrick is dot.LA's Entertainment Tech Reporter. He was formerly a business reporter for the Philadelphia Inquirer and reported on New Jersey politics for the Observer and the Press of Atlantic City.

Netflix Could Generate $3B From Ads After Its New Deal With Microsoft
Photo by Venti Views on Unsplash

Netflix’s decision to partner with Microsoft for its ad-supported subscription plan could put the company on track to generate a multi-billion dollar ad business.

The struggling streaming giant could boost its revenue in the U.S. and Canada by $3 billion, or 20%, by 2024, Bloomberg Intelligence tech and media analyst Geetha Ranganathan recently wrote to clients. She added that Netflix could use ads to potentially monetize 25% of its U.S. and Canadian subscriber base, or about 19 million people.

Assuming the streaming service airs seven ads an hour, she estimated around $750 million in new quarterly ad revenue, or $3 billion for the year, in the U.S. and Canada. A more conservative estimate suggests a $1.25 billion revenue opportunity by 2024, she said.

“Given the average user spends two hours a day on the platform, Netflix's opportunity appears compelling,” Ranganathan wrote.

The streaming giant has raced to introduce a cheaper subscription tier this year after it lost subscribers for the first time in a decade. Since Netflix set a tight deadline for itself to launch the low-cost plan, the company sought an outside partner to handle the ad sales and technology.

In tapping Microsoft, Netflix is choosing an established player in the online ad business—without having to work with a direct rival. Netflix reportedly kicked the tires on Comcast and Google, but both of those companies have their own streaming services. In addition, Microsoft offers strong privacy protections for consumers, Greg Peters, Netflix’s COO and chief product officer, wrote in a blog post.

The outlook on Netflix has been dire lately; the company shed 200,000 subscribers at the start of the year and is expecting to lose two million more during the quarter that just ended. But with a global customer base of 222 million, it also has the potential to build a significant ad business.

Netflix is still in the “very early days” of developing its ad-supported plan, Peters said, adding that the company is reportedly aiming for a launch by year’s end. Whenever Netflix starts airing commercials, it’ll join an expanding roster of streaming services opting to sell cheaper subscriptions with ads, including Hulu, HBO Max and Peacock.

As consumers continue to cut the cord on traditional cable TV in favor of online streaming, they’re increasingly opting for these less expensive plans. Spending on internet-connected TV ads, meanwhile, has rapidly risen in recent years, jumping 60% in 2021 alone, according to research from Insider Intelligence.

“Despite the lack of ad infrastructure, Netflix dominates U.S. streaming viewership, which we think will allow it to quickly ramp up ad revenue,” Bloomberg’s Ranganathan wrote.

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