December 5, 2023

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Netflix Its shares jumped more than 9% on Thursday shortly after releasing details about its new ad-supported tier, suggesting the business model is starting to pay off.

The streaming service said this week that its cheaper, ad-supported option has 5 million monthly active users, and that 25% of new subscribers signed up for the tier in regions where it was available.

The update comes as Netflix rolls out to advertisers for the first time on Wednesday, the first time Netflix has participated in what the industry calls an Upfront presentation.This year, top media companies include ComcastNBCUniversal and warner bros found Ad-supported streaming options were highlighted in their demo.

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Netflix shares rose on Thursday, shortly after the company provided new details about its ad-supported streaming tiers.

Netflix launched an ad-based option in late 2022 after several quarters of stagnant subscriber growth that sent its stock tumbling.

The company had mixed financial results in its most recent quarter, but said it added 1.75 million subscribers. Netflix is ​​also preparing to roll out its password-sharing crackdown more broadly, another move to boost revenue.

Once focused on adding subscribers to their fledgling streaming services, media companies have turned their attention to making the business profitable. To that end, some companies have been cutting content spending costs and relying on advertising models.

Last week, when Disney reported earnings, CEO Bob Iger noted that the company sees an ad-supported option for its Disney+ streaming service as another way to help the streaming business become profitable. Disney+ lost 4 million subscribers during the quarter.

Netflix’s ad tier, which costs $6.99 a month to run 15- or 30-second ads before and during content, marks a management shift at the company, which has long said it would not run on the platform advertise.

Netflix partnered with Microsoft to introduce advertising options. Its content will be rated by Nielsen later this year to help advertisers better understand its reach.

Shortly after launch, Netflix founder and former CEO Reed Hastings admitted he had been slow to advertise on the platform. When Netflix launched its 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 may offer multiple subscription plans with ads in the future, underscoring the potential to add more subscribers.

— CNBC’s Alex Sherman contributed to this report.