The idea behind the streaming revolution seemed very simple and compelling. Pay a monthly fee, have access to a ton of content and be absolutely free of advertising. This model disrupted the traditional broadcast TV business, attracting over 325 million subscribers world-wide that paid a subscription fee, not to miss a single ad. However, that model is not the model that we now see growing, and Netflix is taking the lead in driving that model back towards the old.
The data suggests that the idea of the highest monthly subscription cost user being the most valuable on the platform has begun to fade and it is the user that spends the most time viewing content on the streaming service that has become the most valuable customer. That fact is the most significant driver behind the subscription service being built out to include advertising. The reasoning is the simplest and most effective of all, because advertising revenue depends solely on time viewing so therefore the user that is viewing the most content, the cheapest subscription or not, is the highest value to that streaming service.
This is evident by the recent behavior within the market from Netflix itself, the business is raising its subscription prices in the US, while at the same time expanding and reinforcing its advertising section. Both actions demonstrate that Netflix believes the most growth to come from is its advertising strategy. Not only does the cheaper tier attract more people but it gives another avenue for more advertising revenue on top of a basic subscription fee.
For the first time in a while it seems that Netflix is completely embracing advertising on its platform after years of strongly refusing, and with the immense amount of people subscribing to the platform and the billions of hours watched each month it is very attractive for any advertisers looking to tap into that huge audience. It has also been suggested by professionals in the industry, depending on each individual, a user may generate more revenue, either equaling or outweighing a premium subscription service through their advertising subscription service, something that few had predicted.
As the customer is becoming more cost sensitive, they are turning to these lower cost packages at an increasingly rapid rate, these cheap plans have been shown to be the biggest driver of customer acquisition on streaming services and it is now believed by industry professionals that, while premium subscribers still hold higher direct revenue, the entire stream system is now leaning towards more television-like content providers.
