Netflix: Ads and Paid Sharing in a Maturing Streaming Market

Netflix, Inc. began as a DVD-by-mail rental service and introduced streaming in 2007. It now operates a subscription streaming service in over 190 countries.

In late 2022 Netflix launched a lower-priced plan with advertising. In 2023 it expanded “paid sharing,” which asks members who share an account with people outside their household to pay extra or have those people start their own memberships.

Membership growth slowed in 2022 as the streaming market became crowded with rivals and many households were already subscribed, both signs of a maturing market. Many viewers watched through shared passwords and paid nothing.

• The ad-supported plan is a lower-priced product for price-sensitive segments, plus a new revenue stream from advertisers.
• Paid sharing turned non-paying viewers into paying customers. This is value capture from people the service already created value for.
• KPIs like paid net additions and operating margin let managers see whether the strategy worked: both improved in 2023.