Research firm sees ad-supported Netflix dominating by 2027

The Netflix startup screen appears on a laptop computer. (Photo by Jade87 via Pixabay/Graphic by The Desk)

The majority of Netflix subscribers will switch to the company’s ad-supported tier over the next few years, according to new research by an analytics firm released this week.

The data, compiled by the research company Omdia, claims 60 percent of Netflix’s global subscribers will be on the ad-supported tier by 2027.

Maria Aguete, a senior research director with Omdia, said Netflix and other companies are chasing a trend in which advertisement dollars are shifting toward “connected TV” and away from traditional television platforms.

Long considered the cornerstone of the subscription streaming world, Netflix has been challenged by legacy media brands and upstarts alike that have launched their own streaming services in recent years.

Those media brands have moved away from licensing their TV shows and movies to Netflix in order to keep that content for their own streaming services. Many of them offer access to ultra-high definition content and the ability to watch on multiple screens at once for a lower price than what Netflix charges.

Netflix tried to offset subscriber decline by injecting billions of dollars in production studios and original content. But the effort didn’t seem to pay off: Over the last two financial quarters, Netflix admitted it lost more subscribers than it gained, to the tune of over 1 million customers.

Now, Netflix is hoping a cheaper, ad-supported tier will help it reverse its bad fortune. But the report from Omdia says Netflix is only expected to generate about a quarter of its revenue from advertisements.

Some customers may still opt to subscribe to Netflix’s pricier, ad-free tier in order to gain access to all of its shows and movies, particularly amid reports that Netflix’s licensing agreements with some distributors doesn’t currently allow it to run ads against some programs. According to a Whip Media survey, more than 70 percent of Netflix customers surveyed said they intend to stay on the commercial-free tier of service after the ad-supported package is introduced next year. (Other research indicates some Netflix customers are at least considering the cheaper, ad-supported version.)

Still, Omdia’s research indicates Netflix’s ad-supported product will see significant adoption from global customers over the long-term, and that Netflix is positioned about as good as any of its competitors to take advantage of the connected TV advertising market. According to Omdia, advertisers are expected to spend more than $360 billion to reach customers of streaming television services, up from around $120 billion spent this year.