Analysts see $4B+ U.S. advertising opportunity for Netflix

New analysis from LightShed Partners zeroes in on “time spent” on subscription streaming services as the metric driving the ad-supported opportunity for SVODs. The firm pegs Netflix as having a potentially $4 billion-plus advertising revenue opportunity in the U.S., thanks to a leading position in terms of hours spent for connected TV viewing.  

Netflix plans to introduce a lower-cost tier with ads, possibly as early as the fourth quarter of 2022, and just last week named Microsoft as its advertising technology and sales partner.

 The analysis connects the importance of “time spent” on streaming platforms to growth opportunities for ad revenue – with Netflix and YouTube capturing the largest shares of connected TV viewing time by far compared to other platforms. Combined their share grew to 50% in March 2022, according to LightShed.   

“Services such as Netflix and Disney+ are both starting off with zero ad-supported subscribers,” wrote LightShed analysts led by Richard Greenfield, in a July 18 note. “However the relative time spent illustrates just how large the financial opportunity is for Netflix.”

Based on Comscore data and LightShed Research estimates, the firm showed total CTV streaming hours across services were 8.3 billion at March 2021 and grew to 10.5 billion as of March 2022, reflecting a 27% increase.

Netflix captured 29% share in March 2022 with 3 billion connected TV hours streamed (domestically) reflecting a 47% increase in its CTV hours streamed in March 2021 when it captured a quarter of Comscore’s reported OTT viewing hours. YouTube followed closely with 21% share in March at 2.2 billion CTV hours streamed. Hulu was the only other service to reach more than 10% share connected TV viewing time (with 12% share) among streamers and more than 1 billion hours. Looking at just ad-supported services LightShed said Hulu is second with 20% share, only behind YouTube and inclusive of its Hulu Live virtual MVPD.

“No other streaming service represents even 5% of ad-supported connected TV time spent,” the firm noted.

And time spent “becomes the critical driver of revenue when you are trying to sell advertising,” LightShed wrote. “Time spent creates inventory (impressions) that can be monetized.”

The analysts said that advertisers want to reach consumers of ad-supported streaming services, but there aren’t enough premium, long-form content impressions – i.e., time spent on ad-supported SVODS – out there in order move “tens of billions of ad dollars from linear TV” to streaming.

With few ad-supported options capturing significant time spent share, LightShed believes scaled platforms, in terms of reach and time spent, will dominate shifting ad dollars – with Netflix in a particularly good position. Disney+ also plans to roll out an ad-supported tier this year, but LightShed sees less revenue opportunity, noting that while the service is taking share and increasing subscribers year over year, Disney+ still only accounted for 4% of connected TV time spent, at around 400 million hours in March 2022.

Lightshed posited that if 40% of Netflix and Disney+ subscribers take a lower-cost ad-supported tier, it would place the former firmly in the No. 2 position behind YouTube and well ahead of Hulu – but Disney+ would only be slightly larger than FAST services Pluto and Tubi in terms of ad-supported time spent.

Hulu brings in about $3 billion of advertising revenue while Pluto and Tubi are around $1 billion, including some international ad revenue, according to LightShed.

“In turn, Netflix appears, domestically, to have a $4 billion-plus advertising opportunity (and growing as it and CTV as a whole grows), whereas Disney+ domestically is likely under $1 billion (remember, a significant portion of Disney’s time spent skews to children under the age of 10),” wrote Greenfield. “This helps explain why Microsoft was willing to make a multi-billion dollar minimum guarantee to Netflix to win its advertising business.”

Time will tell how willing consumers are to take on a lower-cost ad-supported Netflix subscription, though recent survey data from DeepIntent suggest consumer appetite is growing for the trade-off of cheaper subscriptions that include ads. Eyes continue to be on Netflix this week as the streaming giant is set to report second quarter earnings Tuesday, July 19.