• by Wayne Friedman , Staff Writer, July 23, 2024

Netflix’s closely watched advertising revenues continue to be under scrutiny. But also it might be good to have some binoculars at the ready.

In its second-quarter earnings call with analysts, Netflix Chief Financial Officer Spencer Neumann says advertising spend will not be a "primary driver" of growth until later this year or next year.

And we are talking about “growth” rather than actual revenue. For years to come, that growth will continue to come from subscription revenues.

This may not be bad news -- especially now that the marketplace is awash in lots of new inventory everywhere. This is mostly a result of streaming -- Amazon Prime Video in particular -- and is putting downward pressure on streaming cost-per-thousand viewer (CPM) pricing.

eMarketer estimates Netflix's U.S. ad revenue will reach $950 million, rising to $1.24 billion next year for the nearly two-year-old product.

By comparison, over the last four quarters, overall U.S. revenue was $16.2 billion. Globally, Netflix revenue during that period was $36.3 billion.

Looking more broadly -- in comparison to other streaming video platforms with a longer tenure -- YouTube global advertising revenues totaled $31.5 billion. 

For Netflix, the preamble to the "primary growth" period is that currently nearly half of all new Netflix subscribers (45%) are taking its cheaper ad-supported option. It is also building its own  in-house advertising tech platform/server.

Netflix is still the only dominant premium streaming player that has consistently been profitable. That’s a great position to be in, as they are making this business pivot.

This “transition” is a much better place to be versus other companies looking to make their TV-video changes -- like Paramount Global, AMC Networks, and other TV-network based groups. 

Moving away from linear TV networks is a more urgent matter -- especially as advertising and distribution revenues continue to contract at a faster rate.

The overwhelming position for Netflix is that there are much better profit margins in the advertising business. It's kind of a no-brainer -- which, of course, still makes us wonder why it took so long to make the move in the first place.