The Netflix ad tier has hit the 1 million user mark. Which means it won’t have to refund advertisers anymore.

I’m interested how the numbers are working out for them. The ad tier is $3 cheaper per month than the ad-free basic plan. Netflix wanted CPMs in the neighborhood of $60-$65. Reports are that they’ve been a bit lower. But even at a $35 CPM, it’s forecast The ‘Flix could hit a $9.45 average revenue per user (ARPU) per month.

Making money!

But wait, they have to be paying Microsoft something to provide and maintain the infrastructure powering those sweet ad dollars. I don’t know what that agreement is, but it’s cutting into that $6.45 of monthly revenue differential.

If Netflix goes the roll-your-own route to replace the Microsoft stack, I wonder how long the ad-free basic tier will last.

It has to be looking at Disney’s success raising the price to avoid ads with envy. Same $3 difference, 94% of subscribers ponied up. (Expect that price insensitivity to be tested again.)

There is also the aggregation theory angle at play.

Netflix rose to prominence on a deep catalog of OPC (other people's content). That moat is gone. It's far from the only streaming service in town these days.

What happens when companies like Apple, Amazon, and Google start dumping billions of dollars into content production for their competing platforms? Those companies don't need to monetize that content directly, it's just a sweetener for joining (and staying in) their respective ecosystems.

Reed Hastings ('Flix cofounder) has one of my favorite views on content competition:

It’s 8:00 in the evening, you’re next to your TV–which remote control do you pick up: PlayStation remote? TV remote? Or do you turn Netflix on?

Sometimes employees at Netflix think, ‘Oh my god, we’re competing with FX, HBO, or Amazon, but think about if you didn’t watch Netflix last night: What did you do? There’s such a broad range of things that you did to relax and unwind, hang out, and connect–and we compete with all of that.

That's pretty clear-eyed. It also means the rise of TikTok and YouTube is just as panic-inducing for them as for Meta.

But for now the focus is on making enough money to stay relevant, otherwise the rest of those concerns are irrelevant.

After a rocky start, the new ad tier could be the money printing machine The 'Flix has been looking for. At least for as long as the current economic uncertainty sticks around.