On Thursday, Netflix released second-quarter earnings that showed growth in many areas of its business, reinforcing its lead in the streaming landscape. The company reported year-over-year growth across all its major subscription plans, with the number of users in its ad-supported tier growing by 34% compared with last year, and overall membership increasing by 16.5%. This was coupled with strong revenue growth of 17% compared with the same quarter in 2023.
The seeds for this harvest were planted in 2022, in response to a slowdown in new subscriptions. At that time, company execs decided to offer a low-cost, ad-supported tier of service despite a long-standing pledge that it would never go down that path. Netflix introduced its ad-supported tier in the Fall of 2022.
In addition, starting in the Spring of 2023 Netflix undertook an infamous and delicate “password crackdown” campaign, which shut down the ability for a single subscriber to “share” their username and password with other users. In the end, a large percentage of these ghost users opted to sign up for their accounts so they could continue watching. In many cases, price-sensitive customers chose to sign up for the low-cost, ad-supported option.
Following its release of second-quarter results, Netflix announced its intention to phase out its long-standing “basic” subscription, priced at $11.99 per month without ads. Netflix will continue to offer ad-free “standard” and “premium” plans, which costs $15.49 and $22.99 respectively, and allows access by multiple accounts.
Meanwhile, Netflix’s ad tier will be available for $6.99 per month, appealing to cost-conscious consumers. During its Q2 earnings call, Netflix co-CEOs Ted Sarandos and Greg Peters projected that ad sales would become a “significant driver of revenue” by 2026.
