Netflix Is Betting Big On This $400 Billion Market
For years, Netflix (NASDAQ:NFLX) growth story was simple: add subscribers, raise prices, and reinvest in content. That playbook is now reaching its limits. With scale largely achieved in the U.S., the company’s next phase hinges on monetization efficiency rather than raw user growth.
This is why Netflix’s advertising business has officially become a primary engine for the company’s growth strategy.
Ads are high margin. Once the ad-tech infrastructure is built, ad revenue is highly scalable and has low incremental cost, unlike capital-intensive content production.
Ads also help to unlock price-sensitive audiences, counter subscription fatigue and saturation, and add a new revenue lever amid maturing paid subscriptions. Netflix’s next phase is less about adding users and more about monetizing its existing scale more efficiently.
Scaling at Speed
The “Standard with Ads” plan offers a lower-priced option (around $7.99/month in the U.S.). Netflix’s ad revenue grew by 2.5x in 2025, surpassing $1.5 billion. Management expects this to roughly double again, targeting $3 billion for 2026. The ad-supported tier now reaches 190 million monthly active viewers (MAV) per the company’s update last November. The ad tier is now the “default” for many, accounting for 55% of all new sign-ups in available markets as of last year. The market is also massive. Total U.S. media ad spending was projected at over $422 billion for 2025 under eMarketer’s best-case scenario, with digital channels taking over three-quarters of the share, with video coming in as one of the fastest-growing segments.
Live Content Advantage
One of the biggest drivers of this revenue surge is the pivot to live events. The introduction of live events, such as the NFL Christmas Day games and the upcoming WWE Raw in 2025, represents a paradigm shift for Netflix’s ad business. Live content is a goldmine for Netflix due to several unique advantages. Live events command significantly higher CPMs, or cost per 1,000 viewers. The scarcity of real-time viewership for a massive, simultaneous audience creates a premium environment that advertisers are willing to pay top dollar for.
Viewers are far less likely to skip ads during a live event, as they fear missing crucial moments. Live events are also ideal for interactive and shoppable ad formats, allowing viewers to make impulse purchases related to the event, such as team merchandise, directly from their screens, driving higher conversion rates for brands. In effect, live programming turns Netflix from a passive viewing app into a high-attention advertising environment.
The Tech Shift
Netflix has been transitioning from relying on Microsoft’s technology to its own in-house ad-tech stack. By owning the technology, Netflix can leverage first-party watch history and engagement data to offer privacy-safe, highly granular targeting, such as reaching viewers who consistently watch action or sci-fi content, without relying on third-party cookies. Alongside this shift, Netflix has integrated with Amazon’s Demand-Side Platform (DSP), allowing major brands to buy Netflix ads through tools they already use at scale. Owning the ad stack is crucial. It moves Netflix beyond being a simple seller of ad inventory and toward operating as a full-fledged advertising platform.
Higher Revenues With Ads
Investors are obsessed with average revenue per membership.
Netflix has skillfully leveraged its pricing strategy to guide both new and existing subscribers toward the ad-supported tier. In late 2025, the company raised prices for its ad-free “Standard” and “Premium” plans to $17.99 and $24.99 respectively, while keeping the ad-supported plan at an attractive $7.99. At the same time, the cheaper “Basic” ad-free plan was phased out, creating a significant price gap and making the ad-supported option the most economically compelling choice for many households.
This strategy is not about pushing subscribers toward a lesser product. For Netflix, the ad-supported plan holds immense value. When combining the $7.99 subscription fee with projected ad revenue per user, the average revenue per membership for an ad-supported subscriber can equal or even exceed that of a standard ad-free subscriber. Furthermore, the lower price point contributes to reduced churn, retaining users who might otherwise cancel as costs rise.
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