In Q1 2023, PARQOR will be focusing on four trends. This essay focuses on  "The definition of scarcity is continuously evolving away from linear. What happens next?"

Two independently reported stories from the past week offer two different lenses on Netflix’s emerging ad business. 

The first was Digiday’s Ronan Shields report that Netflix is “now considering alternative options on how to run its operations with potential outcomes including the streaming giant in-housing its ad tech.” Its partnership with Microsoft is a two-year deal announced last July, and its current moves seem to be an insurance policy if Microsoft’s Xandr platform is unable to evolve in the ways Netflix requires.

The second was research released by firm Antenna on the performance of ad-supported tiers of Netflix, Disney+ and HBO Max in their first three months. Netflix’s Basic with Ads accounted for 54% of all Basic tier Sign-ups for Netflix, and 20% of all sign-ups in January 2023. Basic with Ads users now account for ~1% of Netflix’s subscriber base in the U.S. 

Nominally that should be around 650,000 subscribers, but Bloomberg’s Lucas Shaw reported internal Netflix data that the total subscribers are closer to 1 million. That would imply Antenna may have mathematically rounded down from a figure like 1.4% of Netflix’s subscriber base in the U.S., or (910,000 subscribers [NOTE: the reason for the rounding down is evidently for simpler chart optics].

So there seems to be evidence of a “there” there for Netflix’s advertising ambitions. Or is there?

Key Takeaway

Netflix’s bets for the future are both subscription and ad-supported streaming, and gaming. An advertising model still seems complicated for Netflix's DNA.

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