Netflix's more affordable subscription with adverts has become a significant growth driver for the streaming platform, accounting for over half of new subscriptions in the past quarter.
The number of users with these subscriptions increased by 35% within three months. Netflix aims to leverage this momentum to attract more advertisers, potentially pulling more advertising spending away from traditional TV to its streaming service.
Netflix had initially established itself as a service where viewers paid to avoid the headache of ads associated with watching TV or going to the cinema.
In several countries, Netflix has removed its previously cheapest ad-free pricing tier, leading cost-conscious customers to opt for the ad-supported subscription.
In the past quarter, Netflix gained more than 5 million new customers, bringing its total to approximately 282.7 million household subscribers and estimating about 600 million viewers.
Netflix's strategy is to cover as many TV categories as possible, offering films and series exclusively. "You don't have to go anywhere else," said chief executive Ted Sarandos, listing reality shows, animated series and wrestling as part of the variety.
The company says even in its most successful markets, it has captured less than 10% of total TV consumption and is keen to expand its share.
According to Netflix, customers spend an average of two hours per day using the service, a metric seen as an indicator of satisfaction. Usage time is reportedly similar between the ad-supported and more expensive ad-free tiers.
Netflix sees high user engagement as a sign that prices can be increased. "We occasionally ask members to pay a bit more so we can invest," said co-chief executive Greg Peters.
Netflix's management has dismissed bundle offers with multiple streaming services, which some US competitors are trying. Sarandos suggested this might make sense for rivals with smaller offerings and lower usage, but Netflix intends to expand its own programming.
Netflix has meanwhile lost interest in cinema distributions, focusing instead on its entertainment subscription business.
"It's a pretty good business," said Sarandos, noting that the 10 most popular Netflix films have been watched over 100 million times, comparable to productions that would have grossed a billion dollars in cinemas. Sarandos argued Netflix offers filmmakers the largest audience in the world.
Hollywood has been concerned about the streaming boom's impact on cinema attendance and the potential displacement of industry workers by AI. Sarandos acknowledged the hype around AI, stating it must pass the test of helping create better films and series. If successful, Netflix would benefit more from higher quality than cost savings.
Netflix increased its revenue in the third quarter by 15% compared to the previous year, exceeding $9.8 billion. Analysts had expected slightly less. Profits soared to $2.36 billion from approximately $1.68 billion a year previously. For the current quarter, Netflix hopes for a boost from the second season of "Squid Game" and anticipates another revenue growth of nearly 15%.
Netflix's crackdown on password sharing beyond a single household since last year has driven user growth, with many people who once used someone else's login now opting for their own subscription.
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