Netflix targets global TV ad market as next disruptive business

  • Streaming giant bets on new, 30% cheaper ad-supported service
  • The global TV advertising market is estimated to be worth $153 billion
  • “Big Move” in an Inflationary Environment – Advisor
  • Ad-supported service to launch in US and 11 other markets in November

Oct 19 (Reuters) – About a dozen years ago, Netflix Inc (NFLX.O) upended the global entertainment industry with a streaming video service that made network TV programming and movie showtimes almost irrelevant.

Now, Netflix is ​​bidding for the last piece of the pay-TV business: its global ad revenue is estimated at $153 billion.

The company and some analysts see its new, cheaper ad-supported service (detailed in an upbeat quarterly report on Tuesday) as a way to boost revenue as customers cut back amid the economic downturn expenditure. If TV’s audience dwindles, it becomes less attractive to advertisers — an important target for Netflix’s disruption.

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Netflix co-CEO Reed Hastings said he was stunned after hearing former Disney (DIS.N) CEO Bob Iger recently describe traditional TV as heading for a cliffhanger. With this insight.

“What I’m underestimating is just the impact on advertisers,” Hastings said in a video interview about Netflix’s third-quarter results and outlook. Shares rose 14% after the company forecast it would attract 4.5 million customers in the fourth quarter.

“They’re just being able to reach fewer people, and the 18- to 49-year-old population[declines]even faster than pay TV. So that’s what’s really driving this cycle, it’s… linearity. Television as an advertising vehicle.”

Netflix plans to launch an ad-supported version of its service in the US and 11 other countries in November. It costs $6.99 per month in the US, which is 30% less than its basic ad-free plan, and includes about 5 minutes of ads per hour.

Ultimately, Netflix, which now operates in more than 190 countries around the world, aims to deliver “personalized” advertising, just as it recommends personalized viewing recommendations.

CFO Spencer Neumann said the new service would make money over time, but cautioned that “it’s small.”

Some Wall Street analysts said the ad-supported version of the Netflix service could lure some existing price-conscious subscribers to lower-priced options.

In times of economic turmoil, this is likely to benefit it.

“While the strategic shift could eat into its existing markets — especially in the $9.99 market — it’s a good move in this inflationary environment,” said Fred Boxa, associate director at consulting firm Arthur D. Little. Families continue to rationalize their streaming options.”

If Netflix can pull it off, the ad-supported version of the service and its upcoming revenue from charging subscribers for shared accounts will likely make up for any shortfalls in the lower-priced streaming tier, said veteran executive Haris Anwar. ) express. analyst.

Netflix’s embrace of advertising could deal a severe blow to TV networks and broadcasters that rely on advertising as their main source of revenue, said PP Foresight analyst Paolo Pescatore.

“This could be the final nail in the coffin for those players,” Pescatore said.

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Reporting by Dawn Chmielewski and Lisa Richwine in Los Angeles; Additional reporting by Tiyashi Datta; Editing by Kenneth Maxwell

Our Standard: The Thomson Reuters Trust Principles.

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