Streaming companies are shifting their focus from solely subscription revenue to a model that incorporates advertising, recognizing that the most valuable customers may be those who watch the most content rather than those who pay the highest fees.
This change is exemplified by Netflix's recent price increase, raising its standard ad-free plan to approximately $20 per month while offering an ad-supported tier at $9. This strategy highlights the importance of viewer engagement, as more time spent watching translates into greater advertising revenue.
Kevin Krim, CEO of EDO, noted that engaged ad-tier subscribers could be as valuable, if not more so, than ad-free subscribers. Netflix is aggressively expanding its advertising business, with co-CEO Greg Peters stating that the potential for growth is significant.
With over 325 million global subscribers and more than 95 billion hours of content viewed in the first half of 2025, Netflix has a substantial advantage in generating advertising revenue. The company aims to close the revenue gap between ad-free and ad-tier subscribers, which Peters identified as a key opportunity for future growth.
EDO's analysis indicates that an ad-supported subscriber could generate more revenue than a standard ad-free subscription after sufficient viewing hours, fundamentally altering how streaming services value their subscribers. Netflix's advertising revenue is projected to reach $3 billion by 2026, doubling year-over-year.
The trend towards ad-supported models is also driven by consumer resistance to rising subscription costs, with Deloitte reporting that 61% of consumers would cancel a service if prices increased by $5. Currently, 68% of subscribers are using ad-supported tiers, which have become the primary entry point for new users.
According to Antenna, 71% of new subscriber growth over the past two years has come from ad-supported tiers, with a significant portion being new users rather than downgrades.
While premium subscribers still generate more revenue, analysts suggest that ad-tier subscribers are gaining value and could eventually reach parity with premium users as the market evolves and subscription pricing stabilizes