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Netflix saw its stock rise more than 9% Thursday soon after unveiling details about its new ad-supported tier that suggested the business model is starting to pay off.
The streaming service this week said it had five million monthly active users for its cheaper, ad-supported option and 25% of its new subscribers were signing up for the tier in areas where it’s available.
The update came at Netflix’s inaugural pitch to advertisers Wednesday, the first time Netflix took part in the industry’s so-called Upfront presentations. This year, top media companies including Comcast‘s NBCUniversal and Warner Bros. Discovery highlighted ad-supported streaming options at their presentations.
Netflix stock rallied on Thursday soon after the company offered new details about its ad-support streaming tier.
Netflix launched its ad-based option late 2022, following quarters of stagnating subscriber growth that sent its stock tumbling.
The company posted mixed financial results in its most recent quarter, but said it added 1.75 million subscribers. Netflix is also preparing for the broader rollout of its password-sharing crackdown, another move to boost its revenue.
Media companies, once focused on subscriber additions for their fledgling streaming services, have now pivoted their attention toward making the businesses profitable. To do so, some have been cutting costs on content spending and leaning on advertising models.
Last week, when Disney reported earnings, CEO Bob Iger noted the company viewed the ad-supported option of its Disney+ streaming service as another way to help the streaming business reach profitability. Disney+ lost four million subscribers during the quarter.
Netflix’s ad tier, which costs $6.99 a month and features commercials of 15 or 30 seconds in length before and during content, marks a reversal for the company’s management, which had long said it wouldn’t put ads on the platform.
Netflix launched the ad option in partnership with Microsoft. Its content will be rated by Nielsen later this year to help advertisers better understand its reach.
Soon after the launch, Netflix founder and former CEO Reed Hastings admitted he was slow to come around to advertising on the platform. When Netflix launched the ad tier in November, it was $1 cheaper than Disney+ and Hulu’s ad-supported options.
Netflix Co-CEO Ted Sarandos has said the company is likely to offer multiple subscription plans with ads in the future, highlighting the potential to add more subscribers.
— CNBC’s Alex Sherman contributed to this report.