Background: When Netflix, Disney+ and pretty much every other streaming platform launched, the deal was simple: we pay you a monthly fee and you give us endless binge material. But then, Netflix had a cheeky little idea in late 2022 to sprinkle a few ads right in the middle of a TV series plot twist. Next minute: Disney+, Max, Paramount+ and Hulu all had their own ad-supported tiers as well.

What happened: Reports have shown the latest consumption habits of Aussies where 12 months ago, ad-supported streaming services were in 12.5% of all households. Now, ad-supported streaming services are in 30% of households — nearly a 150% jump in ad-supported tiers... and a 10 million % jump in painful jingles. In fact, Netflix Australia now has more than 60% of all new subscribers join its ad-supported tier.

What else: While that sounds like a lot, Netflix is not complaining one iota. That’s because the unit economics from the ad model supposedly better than the typical streaming revenue model.

What's the key learning?

💡Unit economics is the revenue and cost tied to serving one user or customer - and this is crucial for measuring overall profitability in the tech industry.

💡In the US, Netflix generated more than $70 USD per ad-supported viewer just last year - that’s not even including the monthly subscription. For streaming services, ad-supported tiers offer a dual revenue stream: they get a (smaller) subscription fee plus sweet, sweet advertising dollars.

💡On the flip side, the price barrier for consumers is lower too, which is why 60% of new sign ups are choosing this plan:

• Lower price means lower barrier to entry.
• Lower barrier to entry means cheaper customer acquisition
  

So streaming services believe that by generating two revenue streams from the one customer, they can actually achieve better unit economics.

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