Netflix pushes ad business growth as streaming profits rise

When Netflix launched its advertising business in November 2022, it repeated over and over that it would employ a “crawl, walk, run” strategy. Two years in, it isn’t running but it’s moving more quickly toward its goal.

“We’re on track to reach what we believe to be critical ad subscriber scale for advertisers in all of our ads countries in 2025, creating a strong base from which we can further increase our ad membership in 2026 and beyond,” it declared in its Q3 shareholder letter.

Overall, Netflix reported $2.9 billion in profit during its latest earnings report, up 52% from a year ago. This comes as the streaming giant reported 50% of new members are choosing its ad plan.

While co-CEO Greg Peters was quick to say advertising isn’t a material driver of its revenue yet and still won’t be in 2025, he predicts ad revenue to double next year. By that time, the ad server it is building will be up and running in all 12 markets that offer ad plans. This could enable Netflix to scale its ad monetization plan to catch up to the immense inventory it has, according to Peters.

“If we take the potential size of that opportunity, the growth trajectories that we’re seeing, that’s what makes us so excited about ads being one of those growing levers to support our sustaining healthy revenue and profit growth in the years to come,” Peters said during Netflix’s earnings call.

The streaming giant has long been the moneymaking darling within the streaming space, but now other streaming platforms are turning a profit themselves.

Warner Bros. Discovery reported a full-year profit of $103 million for its streaming business for the first time in 2023. It reported $86 million in profit during the first quarter of 2024 and a $107 million loss in the second quarter.

Disney reported its streaming business reached profitability for the first time in August, taking in $47 million in Q3 (compared to a $512 million loss a year ago). Paramount joined the party as well, revealing $26 million in profits for its streaming arm during the second quarter within its direct-to-consumer segment.

There is a confluence of reasons for this market shift, from pricing increases to password crackdowns, bundling and maturing advertising businesses.

“There is a common playbook emerging which leading players are executing to increase the profitability of their services,” Chris Vollmer, managing director at MediaLink and partner at UTA tells The Current. “Major streaming services are all expanding their advertising tiers and related capabilities to strengthen the monetization of their user bases.”

Streaming is becoming the TV breadwinner

While streaming viewership surpassed cable for the first time two years ago (and is getting closer to outperforming broadcast and cable combined), streaming revenue is just catching up.

Revenue from streaming is projected to overtake traditional TV in the U.S. for the first time ever this year, according to Ampere Analysis. Simply put, the scale has tipped.

Streaming showed up center stage within one of TV and advertising’s oldest annual traditions — the upfronts. Over $11 billion in upfronts dollars have been allocated to streaming video this year, a 35% increase from 2023, according to a report from Media Dynamics. Cable and broadcast allocations both declined by under 5%, according to the same report.

For years, streaming has been called the way of the future. Now the future is finally here for these businesses.

“We know more and more eyeballs are leaning toward streaming,” Jennifer Kohl, chief media officer at global agency VML, tells The Current. “And where the eyeballs go, so does the advertising spending.”