Forecast: Netflix set for European ad boon
August 25, 2022
Western Europe will generate annual revenues of $1.9 billion (€1.9bn) for Netflix from advertising by 2027, more than the US and almost as much as North America ($2.1 billion when Canada is included), according to a report by Ampere Analysis. The study forecasts that an additional $841 million will be earned from ad tier subscription fees in Western Europe ($1 billion in North America).
Ampere believes that Netflix in Western Europe will experience an increase in average revenue per user (ARPU) as a result of the launch of the ad tier. Specifically, the firm predicts that 2023 ARPU will be 4.9 per cent higher than without it, rising to 8.6 per cent higher by 2027.Western European viewers have the highest price sensitivity among Netflix’s customers which combined with relatively high advertising rates on a Cost per Thousand (CPM) basis makes advertising in the region a strong opportunity for the streaming giant.Almost one in five of W European users will be on the ad tier by 2027
According to Ampere’s report, 19.3 per cent of Netflix users in Western Europe will view content via the ad tier by 2027, most of them from the existing customer base. The ad tier will stabilise this saturated region. Ampere estimates a subscriber growth (with ad tier) in Western Europe of 1.8 per cent above a subscription-only model. A relatively strong increase in the value of advertising-supported customers will boost the overall revenue gain.Globally, Netflix will earn $5.5 billion in annual advertising income by 2027, boosted to $8.5 billion a year by ad tier subscription fees. The launch will see Netflix earn $2.2 billion more by 2027 than it would with purely a subscription-only model, driven by an ARPU uplift combined with a modest increase in the overall subscriber base. Ampere estimates that total customers will be 3.2 per cent higher than without an ad tier.Analyst at Ampere Analysis, Ben French, commented: “Very strong advertising rates for streaming in Western Europe will contribute to a significant uplift in the value per customer for those taking the ad tier. Although the overall boost to subscriptions is predicted to be modest in the region, this increased customer value will see Western Europe exceed the value of the US market by 2027.”