Inside Netflix’s Next Chapter: Ad Tiers, Licensing Strategies, Partnerships, and Audience Engagement

While Netflix continues to dominate the streaming landscape, its competitors—Warner Bros. Discovery, NBCUniversal, Disney, and Paramount—are finding innovative ways to stay relevant.

Unlike Netflix, which focuses primarily on original content, these companies have the advantage of extensive, in-demand libraries from their numerous networks. These libraries allow them to monetize content through various methods: exclusive licensing, non-exclusive licensing, and strategic windowing. These companies can build brand recognition and create diverse offerings by leveraging their deep catalogs.

However, from the rapid adoption of its ad-supported tier to evolving licensing strategies and the challenges of maintaining a high hit rate, Netflix is navigating a complex streaming market with more competition than ever. This article delves into these elements, examining how Netflix is adapting to maintain its competitive edge.

The Rise of Netflix’s Ad-Supported Tier

Netflix’s foray into ad-supported streaming has been a resounding success. Launched to offer a more affordable alternative to its ad-free plans, the ad-supported tier has quickly gained traction. Within 18 months, it amassed 40 million monthly active users (MAUs) globally, showcasing its appeal to budget-conscious consumers.

Rapid Adoption and Market Impact

The ad-supported plan, priced at $7 per month, has become the second most popular subscription option in the U.S., with 27% of subscribers opting for it. With Netflix having around 82.7 million subscribers in the U.S. and Canada, it’s estimated that 22 million U.S. users are on the ad-supported plan.

The swift uptake of this plan highlights its potential, with projections indicating it may soon exceed 30 million users worldwide, representing 11% of Netflix’s total subscriber base. This surge points to a notable change in consumer preferences towards more budget-friendly streaming choices, propelled by Netflix’s strategic pricing and marketing efforts.

Strategic Moves and Future Outlook

Netflix’s strategy to phase out the ad-free Basic plan and crackdown on password sharing has also contributed to the ad tier’s popularity. These moves align with Netflix’s shift from a high-growth model to a more sustainable, slow-growth approach that increasingly relies on ad revenues.

Licensing Strategies and International Partnerships

As competition intensifies and content libraries shrink due to major media companies pulling their content, Netflix is exploring new avenues to maintain its market position. Netflix has seen its U.S. library diminish from approximately 11,000 titles in 2015 to around 6,000. Licensing content to other platforms, once an anathema to Netflix’s strategy, is now on the table.

Navigating the Licensing Conundrum

Netflix has historically prioritized exclusivity, but changing market dynamics necessitate flexibility. The company has hinted at potential shifts, suggesting that licensing could be a viable strategy, much like its eventual embrace of advertising, which it denied for years.

Licensing high-demand genres such as drama, animation, and comedy could maximize impact and earnings while targeting non-competing platforms like broadcast and cable services present new opportunities. Globally, drama, animation, and comedy were the top genres last year, with subgenres like Japanese animation, crime dramas, and sitcoms showing significant demand.

Netflix can also explore licensing titles to broadcast, cable, and FAST (Free Ad-Supported Streaming T.V.) services, which are less direct competitors than other SVOD platforms.

Furthermore, Netflix’s roster of short-lived series, largely undervalued after cancellation, can find new life on FAST services like Facebook Watch, Roku, Crackle, and Amazon’s Freevee. These platforms can provide additional revenue streams for Netflix while repurposing content that has already maximized its value on Netflix.

International Partnerships

Outside North America, Netflix’s growth potential is substantial. Partnering with smaller rivals like SkyShowtime and licensing content to European broadcast services can help Netflix tap into new revenue streams. Shows with high travelability, such as “Ozark” and “Narcos,” can generate significant revenue outside the U.S. without cannibalizing Netflix’s core offerings.

SkyShowtime recently acquired 21 HBO Max European originals, highlighting the potential value of such deals for Netflix abroad.

Hit Rate Challenges and Content Strategy

Despite its vast library, Netflix struggles with a low hit rate, with 89% of its titles falling into the “Average” or “Below Average” category based on audience demand data. According to Netflix’s Engagement Report, the top 1,000 titles out of 18,000, or roughly 5%, accounted for nearly 60% of all viewing in the past six months. This challenge highlights the importance of strategic content investments and audience engagement.

Evaluating Content Investment

Netflix original films made up 25% of the platform’s total film catalog in the U.S. market, up from 20% in 2022. However, only one Netflix original film ranked among the 50 most in-demand films worldwide from January 2020 to April 2024.

The demand for these films has declined, suggesting an oversupply relative to audience interest. This discrepancy indicates that Netflix needs to reassess its content investment strategy, focusing on quality over quantity to enhance viewership and demand.

Engagement Metrics and Viewer Commitment

Despite these challenges, Netflix’s ad-supported tier boasts high engagement rates, with over 70% of subscribers watching more than 10 hours per month. This engagement is crucial for maintaining viewer satisfaction and loyalty, particularly in a competitive market.

Live programming, such as comedy shows and sports events, further boosts engagement. Recent deals to broadcast NFL games exemplify this strategy.

Adapting to Maintain Dominance

Netflix’s ability to adapt to changing market conditions is crucial to its sustained leadership in the streaming industry. The rapid growth of its ad-supported tier, evolving licensing strategies, and a focus on audience engagement are pivotal components of its current strategy.

While challenges such as low hit rates and content oversupply persist, Netflix’s willingness to innovate and explore new revenue streams bodes well for its future. The company’s success in these endeavors will not only shape its trajectory but also influence the broader streaming market, setting benchmarks for innovation and adaptation in an ever-evolving digital world.

Source：Filmtake