It’s become an industry guessing game: Will Netflix ever relent on its no-commercials stance and cash in on advertising?
There’s a persistent idea that Netflix is leaving money on the table by not selling advertising — which the company could definitely use toward its $18.9 billion in long-term content-spending obligations, not to mention paying off its $10.3 billion in debt.
The latest on this front: analysts at Nomura’s Instinet have calculated that Netflix could generate more than $1 billion in ad revenue per year if it launched a plan with advertising, with $700 million of that dropping to the bottom line. The Wall Street firm’s estimates are based on the assumption that Netflix introduces a free-to-consumer tier in 2020 that would scale to around 25% of its paid subscriber base by 2021, according to a research note Friday.
“An ad-supported tier could provide a lift to free cash flow, reducing the need for Netflix to raise debt frequently, especially beyond 2021 into a potentially rising rate environment,” Instinet equity analyst Mark Kelley wrote in the report.
As proof a mix of paid and ad-supported SVOD can work, look no further than Hulu. The streamer says around 70% of its viewers are on the $5.99 plan with commercials, and that it generated $1.4 billion in ad revenue in 2018.