Netflix Ad-Supported Tier Quells Fears After Bumpy Launch as It Quietly Reaches 1 Million Users (Report)

The uptick in new subscribers enabled the streamer to fulfill its viewership guarantees

Jenna Ortega in "Wednesday" (Netflix)

Netflix’s ad-supported tier has reached 1 million monthly active users in the U.S., which is not yet enough to impact the streaming giant’s growth but enabled it to fulfill its forecasted deliveries to advertisers, Bloomberg reported.

The user base grew by more than 500% in the first month since its launch in November, the report said, citing internal data. Its second month saw another 50% growth.

The numbers pale in comparison to Netflix’s 231 million paying users — 74 million in the U.S. — but the uptick quells concerns from shortly after the launch that the new tier wasn’t drawing viewers.

Ad-supported rivals like Hulu and Peacock still draw more users, the report noted, as do FAST services like Tubi and Pluto. But the numbers show that Netflix is drawing the audience it hoped for, the report said, noting that Netflix hasn’t promoted the ad business.

But Netflix is giving a choice to consumers on tight budgets — the basic tier with ads is just $6.99 per month — following a series of price hikes in the U.S. that have sent the standard tier rise to $15.49 per month and premium leap to $19.99.

Netflix gambled that existing customers would not downgrade their subscriptions and so far appears to be winning that bet. Most of the new ad-tier subscribers are new or lapsed signups, not downgrades, the report said. The tier accounts for about 20% of new subscriptions, it said, citing data from Antenna.

It’s not clear how many people total have signed on, Bloomberg said, explaining that that the 1 million figure reflects multiple people using one account. Analysts have said the ad tier could draw 15 million to 30 million U.S. subscribers over the long run.

One thing that could drive more adoption is the pending crackdown on password sharing.

The company has already started demanding users stop sharing their accounts across multiple households. Last month, it added an “extra member” feature to accounts in four international markets — Canada, New Zealand, Portugal and Spain — that requires a roughly $5 a month extra payment to share an account. It had earlier tested the feature in multiple Latin American countries.

Yet the streamer has also cut prices in some parts of the globe.

Still, the increased revenue, along with the company’s pared back spending on content, has Wall Street happy. JPMorgan analysts told clients in a research note late Monday that it expects Netflix to generate more revenue through the combination of extra members and new accounts. It kept an “Overweight,” or “Buy” rating on the shares with a $390 price target, meaning the firm expects the stock to rise more than 27% this year.

Netflix shares added $1.64 to $305.06 in morning trading, reflecting modest gains in the broader markets.