Forecast: Online advertising revenues are expected to overtake SVoD

Over the next five years, online advertising revenue will nearly double, from $190 billion (€194 billion) in 2022 to $362 billion in 2027, according to findings from the research group and Omdia technology consulting.

“Netflix is ​​expected to generate just under a quarter of its advertising revenue by 2027 in the United States,” advises Maria Rua Aguete, senior research director at Omdia. “With SVoD growth expected to rise from $86 billion in 2022 to $118 billion in 2027, it’s no surprise that all major SVoD services, including Netflix, want to participate in this growth.”

Omdia estimates that by 2027, nearly 60% of global Netflix subscribers will be ad-supported. This shift will occur through a combination of acquiring new subscribers and “downgrading” existing subscribers to the advertising tier.

Payload and ad formats are major tactical considerations in implementing hybrid models. Omdia expects Netflix to cap instream video ad loads and refrain from introducing UI ads to maintain the premium customer experience, especially internationally, where hybrid models are not fully established. According to some reports, Netflix intends to keep the ad load below four minutes per hour. That’s on par with HBO Max’s ad load cap, but below all other hybrid streamers in the US.

While in the US, Omdia expects Netflix to balance ARPU on the hybrid model tier to roughly equal the consumer price of the premium tier despite the ad load cap , it will be much more difficult in much less mature international markets with lower CPMs and a smaller pool. premium CTV advertisers. Under this assumption, Omdia expects Netflix to generate 23% of its US revenue from in-app advertising in 2027. Globally, that figure will be significantly lower at 14%.

While advertising does not replace subscription as Netflix’s primary source of revenue, the impact of Netflix’s advertising game on the broader competitive landscape should not be underestimated. Under this revenue model, Netflix will become a formidable player in the US CTV advertising market, fully competitive with other leading hybrid D2C models, such as Hulu, Peacock and Paramount+.

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