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Why Netflix’s big move into advertising is getting investors excited

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Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Although expectations for subscription growth had been significantly lowered after two disappointing quarters, Neflix’s (NFLX:NASDAQ) big third quarter beat puts it back on the growth track.
The maker of Better Call Saul and Stranger Things is evolving its business model by segmenting its customer offering and introducing an advertising tier.
It also plans to clamp down on password sharing by introducing sub-accounts for families and friends. The new revenue streams mean it will be difficult to make an apples-to-apples comparison in future and new subscriptions will become a component of overall revenue growth.
Customers opting for the ad-supported tier, costing $6.99 a month (£4.99 in the UK) can expect to see around five minutes of advertising for every hour they watch and receive a lower video quality. The tier will only allow one device to access Netflix.
The advertising initiative was generally well received. Netflix estimates the size of the market for TV advertising in the 12 markets where it is launching to be worth about half the overall size of the $300 billion pay-TV and streaming industry.
In other words, the company has just increased its potential market by around 50%. If Netflix could ultimately convert its roughly 8% share of the US and UK total TV time, it would generate more than $10 billion in incremental revenues.
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