CHONGQING, CHINA – JANUARY 19: In this photo illustration, a smartphone displays the logo of Netflix, Inc. (NASDAQ: NFLX), an American subscription-based streaming service and entertainment company, in front of a screen showing the company’s latest stock market chart on January 19, 2026 in Chongqing, China. (Photo illustration by Cheng Xin/Getty Images)
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For many years, Netflix (NASDAQ:NFLX) had a straightforward growth narrative: increase subscriber numbers, raise prices, and reinvest in content. That strategy is now approaching its limitations. With a large market presence established in the U.S., the company’s forthcoming phase relies on optimizing monetization efficiency rather than merely increasing user numbers.
This is the reason why Netflix’s advertising sector has officially emerged as a key component of the company’s growth strategy.
Advertisements carry high profit margins. Once the ad-tech infrastructure is established, ad revenue becomes highly scalable and incurs low incremental costs, unlike the capital-heavy content creation process.
Advertisements also facilitate access to price-sensitive audiences, alleviating subscription fatigue and saturation while introducing a new channel for revenue as paid subscriptions mature. Netflix’s next chapter is primarily focused on efficiently monetizing its existing scale instead of merely gaining new users.
Scaling at Speed
The “Standard with Ads” plan presents a lower-priced alternative (approximately $7.99/month in the U.S.). Netflix’s ad revenue grew by 2.5 times in 2025, exceeding $1.5 billion. Management anticipates this will roughly double again, aiming for $3 billion in 2026. As per the company’s update last November, the ad-supported tier now has 190 million monthly active viewers (MAV). This ad tier is currently the “default” choice for many, constituting 55% of all new sign-ups in available markets from last year. The potential market is also enormous. The total U.S. media advertising expenditure was estimated at over $422 billion for 2025 based on eMarketer’s most optimistic scenario, with digital channels capturing more than three-quarters of market share, and video emerging as one of the fastest-growing segments.
Live Content Advantage
A significant factor driving this revenue spike is the shift towards live events. The initiation of live events, such as the NFL Christmas Day games and the forthcoming WWE Raw in 2025, signifies a transformative change for Netflix’s advertising business. Live content offers extraordinary potential for Netflix due to various unique advantages. Live events command significantly higher CPMs, or cost per 1,000 viewers. The limited availability of real-time viewership for an extensive, simultaneous audience generates a premium atmosphere that advertisers are eager to invest in.
Viewers are much less inclined to skip advertisements during a live event, as they dread missing critical moments. Live events are also perfect for interactive and shoppable advertisement formats, enabling viewers to make impulse purchases related to the event, such as team merchandise, directly from their screens, which leads to higher conversion rates for brands. In essence, live programming transforms Netflix from a passive viewing application into an actively engaging advertising environment.
The Tech Shift
Netflix has been making a transition from depending on Microsoft’s technology to developing its own in-house advertising technology stack. By owning the technology, Netflix can utilize first-party viewing history and engagement data to provide privacy-conscious, detailed targeting, such as reaching viewers who consistently enjoy action or sci-fi content, without relying on third-party cookies. Concurrently, Netflix has integrated with Amazon’s Demand-Side Platform (DSP), enabling major brands to purchase Netflix advertisements through tools they are already using at scale. Possessing the advertising stack is vital. It elevates Netflix from merely being an inventory seller to functioning as a comprehensive advertising platform.
Higher Revenues With Ads
Investors are intensely focused on average revenue per membership.
Netflix has astutely used its pricing approach to direct both new and existing subscribers towards 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 appealing at $7.99. Simultaneously, the less expensive “Basic” ad-free plan was phased out, creating a notable price differential and positioning the ad-supported option as the most economically attractive choice for numerous households.
This strategy is not aimed at driving subscribers towards an inferior product. For Netflix, the ad-supported plan possesses significant value. When combining the $7.99 subscription fee with the expected ad revenue per user, the average revenue per membership for an ad-supported subscriber can equal or even surpass that of a standard ad-free subscriber. Moreover, the lower price point helps reduce churn, retaining users who might otherwise cancel as expenses increase.
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