Netflix expects ad-supported tier to reach 40 million viewers by next year: Report

Netflix (NFLX) shares were higher Wednesday afternoon after a new report from The Wall Street Journal said the company expects its ad-supported tier will reach 40 million viewers by the end of next year.

Netflix has shared these preliminary projections with ad buyers, the report said, revealing it expects to garner 4.4 million unique viewers worldwide at the end of the year, with 1.1 million coming from the U.S.

By the third quarter of 2023, the company expects those numbers to swell to over 40 million with 13.3 million from the U.S.

"We are still in the early days of deciding how to launch a lower priced, ad supported tier and no decisions have been made. So this is all just speculation at this point," a Netflix spokesperson told Yahoo Finance.

Shares of Netflix briefly spiked following this report, rising as much as 4% in afternoon trade. Near 1:50 p.m. ET, shares were up 1.3%, roughly in-line with gains seen on the day before these headlines crossed.

The news comes as executives at both Netflix, along with its advertising partner, Microsoft (MSFT), met with ad buyers in recent weeks, according to The Journal.

Last week, Macquarie analyst Tim Nollen upgraded Netflix shares to Neutral from Underperform, citing optimism around the streamer's ad tier.

In his note to clients, Nollen estimated Netflix could generate as much as $3.6 billion in ad revenue in the U.S. and Canada by 2025, and $8.5 billion globally, which would represent an incremental $2.1 billion in annual revenue against current estimates.

As competition intensifies in the streaming space and Wall Street looks beyond subscriber counts, platforms have grown more open to exploring various distribution and pricing models in order to diversify audiences and offset shrinking growth, notably through ads.

Netflix and Disney (DIS) are the latest platforms to hop on the ad-tier bandwagon, with the latter aiming to officially launch its ad option on December 8.

Netflix also recently announced two senior hires in its own efforts to roll out an ad-supported tier next year; although new reports now say the company is moving up the launch to November 1 in order to get ahead of Disney's December timeline.

Netflix's ad-supported will cost between $7 to $9 a month, according to Bloomberg. The outlet added that the company plans to play four minutes of ads for every hour of content.

Signage at the Netflix booth is seen on the convention floor at Comic-Con International in San Diego, California, U.S., July 21, 2022. REUTERS/Bing Guan
Signage at the Netflix booth is seen on the convention floor at Comic-Con International in San Diego, California, U.S., July 21, 2022. REUTERS/Bing Guan

Netflix is looking to charge advertisers roughly $65 for reaching 1,000 viewers (a measure otherwise known as CPM or "cost per thousand"), The Wall Street Journal previously reported. That charge is significantly higher than most other streaming competitors, the Journal said, citing potential ad buyers.

Netflix shed 1 million subscribers in the second quarter, the worst quarterly decline in the company's history after the streamer lost 200,000 users in April. Netflix said in July it expects to add 1 million new subscribers in the current quarter.

Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com

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