Netflix might be forced to make a controversial change you’re going to hate
Some streaming services provide users with an option to select a lower-priced tier with ads. Hulu and Peacock are two such examples. Netflix executives, however, have said on numerous occasions that the company will never embrace advertisements. Analyst Michael Nathanson of MoffettNathanson Research, however, recently issued an investor note arguing that Netflix might want to reconsider its position.
According to Nathanson, Netflix is experiencing slower subscriber growth. Consequently, Netflix needs to come up with additional revenue streams to keep investors happy.
Netflix ads would provide an additional revenue stream
“Of course, having a business that generates $25+ billion in annual recurring revenues growing mid-teens is more than admirable, but we are seeing signs that Netflix is looking to build a new profit pool or two à la Disney,” Nathanson explained. “Yet, we don’t think that consumer products or gaming will be enough to change the narrative. Rather, we think that an ad-supported tier or live sports would be the way to go to penetrate harder to reach customer segments and markets, especially in low-ARPU emerging regions.”
Nathanson raises an interesting point, which is to say that subscriber growth can’t continue to increase indefinitely. At a certain point, everyone who wants a Netflix subscription will have one. In turn, Netflix will need to come up with some new and creative ideas in order to boost revenue. In years past, Netflix has managed to address the issue by implementing modest subscription price increases. And though Netflix is still impressively cheap, the company will eventually reach a price ceiling and will be unable to rely on a subscription hike as a revenue driver.
The good news, from Netflix’s end, is that the company still has a lot of room for growth outside the U.S. That said, Netflix currently isn’t in a position where it needs to enact drastic measures to boost revenue. Still, it’s a looming issue that Netflix executives are undoubtedly trying to prepare for.
