Forty-eight percent of new Netflix subscribers opted for its ad-supported subscription tier in Q4 last year, according to Kantar’s global Entertainment on Demand study released today. After initial questions over how the ad-supported tier would be received on a previously ad-free service, the ad tier has steadily picked up subscribers, reaching 23 million monthly active users according to Netflix executives. And Kantar’s data suggests the reach of Netflix’s ad tier will continue to grow rapidly, with around half of new sign-ups opting for ads.
Kantar’s data, drawn from the USA, UK, France, Germany, Spain, and Australia, suggests a wider shift towards ad-supported streaming, as ad-supported services grow and audiences plan SVOD cutbacks.
Ads and content deliver for Netflix
After years of consistent growth, Netflix went through a relative rough patch at the start of 2022, as it has consecutive quarters of overall subscriber losses. Tactical changes since then have returned the service to growth, and Kantar’s data found quarter-on-quarter growth in all markets it measures except the UK, which was down marginally.
As the high volume of ads sign-ups shows, the release of the ad-supported tier has been a significant part of this. To boost this ad tier, Netflix got rid of its cheapest ad-free option in the US last summer, a tactic it’s now deploying in other markets.
It’s impossible to say for sure how many new sign-ups are entirely down to the existence of the ad-tier (since some new subscribers who opted for the ad tier may have still signed up to the more expensive ad-free tier if the ad-tier didn’t exist). But the return to consistent subscriber growth for Netflix suggests it’s having an impact. And the good news for Netflix is any fears that running ads might tarnish its brand are dissipating – Kantar says that retention rates for Netflix are strong and stable, and subscriber advocacy for the platform remains high.
Content has also been a driver of Netflix growth. The Crown, a Netflix original show, was the most popular title across the services measured by Kantar, while Virgin River was the third-most popular.
And Kantar says Netflix’s acquisition of streaming rights for wrestling business WWE provide a path for further growth. Fifty percent of sports fans subscribe to Netflix according to Kantar, leaving a large untapped market. Separate data from Ampere Analysis says that 28 percent of WWE fans specifically currently don’t have access to Netflix.
Ads on the rise
The success of Netflix’s ads tier will be welcome news for Amazon Prime Video, which has been rolling out its own ad business since the start of the year.
Prime Video took the highest share of new paid VOD subscriptions in Q4 according to Ampere’s data, but this was at least partly driven by demand for the wider Prime service, which is particularly popular during the festive season. And other data from Kantar shows growing demand for ad-supported content, and shrinking demand for paid content.
Planned SVOD cancellations are on the rise according to Kantar, with all major SVOD providers seeing higher planned cancellation rates in Q4 last year compared to the previous quarter. Meanwhile free ad-supported streaming services are continuing to grow. Kantar’s data found that FAST is present in more than a third of households in the markets it surveys.
The key issue for consumers is price, and the problem here for Amazon is that unlike Netflix, Amazon isn’t reducing the subscription price for ad-supported streaming (instead offering a new, more expensive ad-free tier). Nonetheless if the ad tier enables Amazon to delay increasing its subscription price, it could still prove useful in attracting new subscribers and maintaining existing ones.
Apple TV+ makes a success of SVOD
As was the case with Kantar’s UK-specific data, Apple TV+ was found to have had a particularly strong Q4 – despite the shift towards cheaper, ad-supported viewing. It was the fastest growing SVOD service (when compared with Q3 subscriber figures).
This is some vindication for Apple’s unusual model, which has focused on a smaller number of high quality productions. But there are challenges under the surface. Free trials are a big driver of Apple’s growth, and Kantar found high churn rates for the streaming service, with 13 percent of subscribers planning to cancel in the first quarter of 2024.
