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Here's Netflix's next $ 1 billion chance



<p class = "Canvas Atomic Canvas Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "There is little doubt that [19459003Netflix (NASDAQ: NFLX) was the biggest winner of the ongoing transition from broadcasting to streaming video, even as competitors such as Amazon.com (NASDAQ: AMZN) and Hulu – now controlled by Walt Disney (NYSE: DIS) has been building a thriving business following Netflix's success so far no challenger has yet reached its massive customer base. "data-reactid =" 1
1 "> There is no doubt that Netflix (NASDAQ: NFLX) was the biggest winner in the ongoing transition from broadcast television to streaming video. Also, as competitors such as Amazon.com (NASDAQ: AMZN) and Hulu – now controlled by Walt Disney (NYSE: DIS) – a flourishing business in the US After the success of Netflix, no challenger has yet reached its massive customer base.

The streaming pioneer continues to grow its subscriber base, with each of the previous four quarters experiencing growth of more than 25% over the previous year. This adds up to nearly 150 million subscribers, and its worldwide growth shows little signs of slowing.

Despite these outstanding gains, Amazon and Hulu have been able to identify profitable niches in an area that Netflix has so far ignored: ad-supported streaming. This opportunity could be worth billions of dollars to Netflix.

A connected TV with display options and apps.

Netflix could make billions if it offers an ad-supported layer. Source: Getty Images.

Leave money on the table?

Instinet analyst Mark Kelley says Netflix is ​​missing out on a lucrative opportunity by not introducing an ad-supported level. Kelley has gone through the numbers and estimates that Netflix, with the launch of a free advertising-supported option, would generate more than $ 1 billion in revenue per year. Most of it would fall directly on the bottom line and generate additional net income of nearly $ 700 million.

"An ad-supported layer could boost [also] free cash flow and reduce the need for Netflix to frequently take on debt, especially after 2021 in a potentially rising interest rate environment," Kelley wrote in a note to clients.

Some believe that the opportunity will soon be too hard to resist. Netflix can handle advertising in several ways. Retaining the existing service, the company could offer a completely free tier that is fully supported by ads. Netflix could also take a page from Hulu's successful playbook and offer a cheaper level ($ 5.99), which is partially supported by ads.

The evidence is clear

Advertising is an idea that Netflix has long resisted, but the demand for such an option is undeniable. Hulu recently reported that its subscription base now exceeds 28 million. The company grew 3.8 million in the first quarter alone and continued its rapid growth from 2018, when the number of subscribers increased 48% over the previous year. The company offers an ad-free level, but more than 70% of viewers are affected by its ad-supported plan.

While Amazon is best known in streaming video circles for its prime video, which is included as part of its Prime membership, the company also offers a free tier through its IMDb television (formerly IMDb Freedive). The leader in e-commerce has recently signaled its growing interest in this field by significantly increasing its program choice. He said he would triple the content on his platform and add thousands of new titles. The company will also launch the service later this year in Europe. This is the clearest indication that it sees a strong interest in a free, ad-supported offer.

Woman wears headphones and eats popcorn while watching a video on a laptop.

Source: Getty Images.

<p class = "Canvas Atomic Canvas Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "There is more evidence of one Increasing demand for ad-supported services The Programmatic Advertising Specialist The Trade Desk (NASDAQ: TTD) employing sophisticated algorithms and high-speed computers to automate ad purchase, posted rapid demand among the fastest-growing segments of the Corporate TV Streamer Broadcasts In the first quarter, networked televisions were up more than 300% year-on-year, but while impressive, this is due to ad revenue, which increased 900% between 2017 and 2018 Data-reactid = "67"> There are further signs of an increasing demand for ad-supported services. The Trade Desk (NASDAQ: TTD) which uses sophisticated algorithms and high-speed computers to automate ad sales has seen rapid demand: One of the fastest growing segments of the company is the streaming of television programs. Advertising: In the first quarter, ads placed on connected TVs increased by more than 300% year-on-year. While impressive, this growth is attributable to advertising revenues, which increased 900% between 2017 and 2018.

Will Netflix finally give in?

So far, Netflix insisted that advertising would never grace its platform. In an interview last year, Netflix CEO Reed Hastings reiterated the company's stance: "Our content is our crown jewel," he said, taking us to [subscribers’] money and turning it into great content for their visual advantage. "This follows a clear message from 2015, when Hastings said to Facebook:" No advertising comes on Netflix. Point.

The situation is likely to be less black and white over time, and Netflix could continue to offer the ad-free service it always has, while providing a more cost-effective (or free) ad-supported service that would not only potentially cost billions of dollars but could also contribute to the company thriving in developing countries where its $ 8.99 per month plan is considered expensive.

Netflix has resisted advertising, but the opportunity may well too lucrative to resist.

<p class = "canvas-atom canvas-text Mb (1.0em) -sm" type = "text" content = " More From The Motley Fool " data-reactid = "72"> More From The Motley Fool

<p class = "canvas-atom canvas-text Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " John Mackey, CEO of Whole Fo ods Market, a subsidiary of Amazon, is a member of the Board of Dire of The Motley Fool ctors. Danny Vena owns shares in Amazon, Netflix, The Trade Desk and Walt Disney and has the following options: Long January 2021 85 USD Calls to Walt Disney. The Motley Fool owns and recommends shares in Amazon, Netflix, The Trade Desk and Walt Disney. The Motley Fool has a disclosure policy. "data-reactid =" 80 "> John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Danny Vena owns Amazon Stock, Netflix, The Trade Desk and Walt Disney have the following options: Motley Fool owns and recommends Amazon shares, Netflix, The Trade Desk, and Walt Disney Fool has a disclosure policy.


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