Netflix ad tier gains steam as live streaming 'experiment' plows ahead

Netflix subscriber gains in Q4 2023 handily beat expectations, with the streaming giant touting solid growth for its ad-supported tier and a plan to further invest in and "experiment" with live streaming.

Starting with subs, Netflix added 13.12 million in the fourth quarter globally, up from a year-ago gain of 7.66 million, expanding its base to 260.28 million. Analysts were expecting Netflix to add nearly 9 million streaming subs in the quarter. Netflix shares soared on the beat – they were up more than 33% in after-hours trading Tuesday.

In the US and Canada, Netflix tacked on 2.81 million subs in Q4, up from 910,000 a year ago, giving it 80.13 million subs in the region.

Netflix posted Q4 revenues of $8.83 billion, up 12% versus the year-ago quarter. It expects Q1 2024 revenues of $9.24 billion.

Advertising on the rise

Netflix's ad-supported offering, launched across an initial 12 countries in November 2022, is starting to accelerate and scale after a slow start.

In Q4, subs taking the ad-tier increased by nearly 70% quarter-over-quarter, matching the rate it saw in Q3, Netflix noted in its investor letter. Speaking at the Variety Entertainment & Technology Summit at CES earlier this month, Netflix President of Advertising Amy Reinhard said Netflix's ad-tier had more than 23 million monthly active users.

The company said its ad-supported plan now accounts for 40% of all Netflix sign-ups in markets where the tier is available.

Netflix attributed that growth in part to improvements in the offering (including allowing downloads of ad-supported shows and movies) and the phasing out of its Basic plan for new and "rejoining" subscribers in Netflix's advertising markets. Netflix noted that it's also looking to retire its ad-free Basic plan in its ads countries, starting with Canada and the UK in Q2.

Bigger focus on live streaming

Netflix also aims to continue to "experiment with live streaming" and invest more deeply into the category, building on the upcoming coverage of the SAG Awards and Netflix Slam, an exhibition tennis match between Rafael Nadal and Carlos Alcaraz.

The company backed that up today with word that, starting in January 2025, WWE's "Raw" will stream live on Netflix exclusively in the US, Canada, UK and Latin America, with more regions to be added over time.

Netflix will fork over more than $5 billion in rights fees over the life of the ten-year deal, with an option to extend it another ten years, or opt out after the initial five, according to an SEC filing from WWE owner TKO Group.

Tied in, Netflix will also stream WWE shows and specials outside the US, including "SmackDown" and premium live events such as Wrestlemania, SummerSlam and Royal Rumble.

In a different form of live, Netflix is also expanding into stage productions, starting with "Stranger Things: The First Shadow," an origin story for Netflix's hit TV series. The new show debuted on London's West End in December.

Addressing rumors

Netflix's letter to investors also referenced ongoing rumors of additional consolidation and M&A activity involving major media companies (Paramount Global and Warner Bros. Discovery are among those in the rumor mill), noting that Netflix intends to stay on the sidelines.

"We're not interested in acquiring linear assets. Nor do we believe that further M&A among traditional entertainment companies will materially change the competitive environment given all the consolidation that has already happened over the last decade," the company said.