Executive Summary: Since its 2026 Q1 earnings call, the dominant narrative around Netflix’s continued growth centers on ad sales. However, we show that subscriptions and subscription pricing remain a more crucial factor, then explain the dynamics of price increases and how Netflix makes use of Good, Better, Best pricing strategy to drive revenue growth. The article is intended for audiences interested in the true stories of business revenue growth and how pricing strategy remains important even for businesses with a significant ad component. The article also includes deep dives into some elements of Netflix’s finances and should be useful to anyone interested in looking at Netflix under the hood.
Netflix Ad Revenue is Growing, but Price Strategy Remains Key for 2026
In 2024, we discussed Netflix’s tiered pricing strategy and its price increases as a key driver of business growth. Now in 2026, Netflix is continuing to increase price, but many recently-published articles have been focused on ad revenue as the main source of revenue growth.
That perspective doesn’t consider Netflix’s overall revenue, which shows pricing strategy remains more important than ads in 2026. In this update, I’ll explore:
- Netflix’s current position in the overall TV market
- Netflix’s 3-tiered pricing strategy
- What is working about this pricing
Ads are Important, but Pricing Strategy Remains Vital
AdWeek, CNBC, Reuters, and the Current all told a similar story in the first few months of this year: for Netflix, advertisements keep growing as a share of the business. With headlines like “Netflix’s advertising strategy shift is starting to pay off” and “Netflix to refocus on ads, content after failed Warner Bros bid,” readers might surmise that ads will drive growth for Netflix in 2026. CEO Gregory Peters popularized this perspective by linking advertising growth to overall growth in the 2026 Q1 earnings call. This narrative comes from Netflix. However, while Netflix is probably eager to emphasize a rapidly growing part of their business, when you look at advertising as a proportion of total revenue, you can see that it remains a small contributor overall.
According to Netflix’s 2026 annual report, the company brought in $45.2 billion in revenue in 2025. According to the Q1 earnings call, about $1.5 billion of that revenue came from selling advertisements. That would put ad revenue at just over 3% of total revenue.
Using estimates from that same Q1 earnings call, ad revenue is projected to remain a relatively small part of overall revenue in 2026. Even if advertisement revenue doubles in 2026 to $3 billion, and total revenue only grows by a comparatively conservative 12% estimate to about $50.7 billion, ad revenue would still only account for about 6% of Netflix’s overall revenue (Netflix estimated revenue growth at 12-14%: because we are using the more conservative estimate, 6% should represent the high end of the share of revenues which are advertising). Below is a visualization of these numbers:
As we can see, ads remain a small portion of revenue, and ad growth is projected to account for 1.5 billion out of a total estimated 5.5 billion dollars revenue growth, making up about 27% of revenue growth. This is not to be sniffed at, but the majority of revenue growth will come from subscriptions in 2026, meaning that price strategy for the subscriptions remains crucial.
A Quick Primer on the Impact of Raising Prices
To understand Netflix’s pricing strategy, we should first understand some dynamics of price increases. Companies can raise the prices of their products and services (and take more profit to the bank) so long as the units lost from the price increase do not overwhelm the price increase– and assuming that unit costs are not substantially changed by the unit decrease.
Here’s a simple price increase example where profit increases:
| Regular | Price Increase | Change | |
| Weekly units | 1,000 | 900 | (100) |
| Revenue per unit | $3.00 | $3.25 | $0.25 |
| Cost per unit | $1.50 | $1.50 | $0.00 |
| Profit per unit | $1.50 | $1.75 | $0.25 |
| Total weekly profit | $1,500.00 | $1,575.00 | $75.00 |
Weekly profit increased by $75, since the profit loss from lost units was $150 ($1.50/unit on 100 lost units) while the profit gain was $225 ($.25/unit on 900 units remaining). In economist-speak, the elasticity of demand was low enough (-1.2) to lose fewer units at the new price than the gain from the price increase.
However, this happy outcome does not always happen. Increasing prices can lower profits:
| Regular | Price Increase | Change | |
| Weekly units | 1,000 | 750 | (250) |
| Revenue per unit | $3.00 | $3.25 | $0.25 |
| Cost per unit | $1.50 | $1.50 | $0.00 |
| Profit per unit | $1.50 | $1.75 | $0.25 |
| Total weekly profit | $1,500.00 | $1,312.50 | -$187.50 |
Now, weekly profit has declined by $187.50, as units lost were greater than the price increase on the remaining units.
While the math is simple in theory, how do companies know how the market will react to their pricing decisions? For Netflix, these predictions come from understanding consumer behaviors surrounding content consumption.
TV Time in the US: Netflix Dominates in 2026
According to a July 2025 poll from the Pew Research Center, 83% of Americans claim to watch streaming services. By comparison, only 36% subscribe to cable or satellite TV. This is a sea change from 2022, when we reported that Cable had an edge over streaming.
According to Nielsen in January 2026, streaming accounted for more viewing hours than broadcast and cable combined:
Of those many streaming hours, Netflix continues to be the leader, having accounted for 8.8% of TV viewing overall in January 2026, or about 19% of streaming viewing. The number two streaming service, Disney, accounted for 4.9%. Looking at the Pew poll data from July 2025, Netflix is similarly dominant:
- 72% of Americans claim to have watched Netflix
- 67% reported watching Amazon Prime Video
- 52% watched Hulu
- 48% Disney+
When we compare users, Netflix is similarly dominant. According to CableTV.com, in 2026, Netflix has 325 million subscribers worldwide, more than double the 132 million subscribers to Disney+ or the 128 million HBO subscribers, more than quadruple the 79 million Paramount+ subscribers, and almost octuple the 41 million Peacock subscribers.
As the data shows, Netflix is in an enviable, market-leading position. However, in addition to competitors challenging it, users show significant price sensitivity. 46% of Netflix users indicated in a survey done by TD Cowen (May 2025) that they would cancel their service if the price rose.
Netflix Pricing Strategy, Based on Customer Segmentation
Netflix’s pricing strategy was a three-pronged approach:
- convert free-rider households into paying households
- increase the price for no-ad service
- monetize the value of more simultaneous streaming and add-on households
In the spring of 2023, it implemented barriers to prevent password sharing and offered the following pricing plans for a single household to replace the previous $9.99/month no-ad plan:
- $6.99/month with ads – in 2026, this plan is now $8.99/month
- $15.49/month without ads, watch on two devices simultaneously and could add another user for $8.99/month – in 2026, this plan now costs $19.99/month and it is possible to add one additional user for $7.99/month with ads or $9.99/month with no ads
- $19.99/month without ads, watch on 4 devices simultaneously and could add two additional users for $7.99/month each – in 2026, this plan now costs $26.99 and it is possible to add up to two additional users for for $7.99/month each with ads or $9.99/month each with no ads
The pricing structure follows “Good, Better, Best Pricing,” which Insight to Action has written about before. Each of these plans were designed with a specific customer segment in mind. First, a lower-price plan that would be subsidized by ad revenue for those who value price over the inconvenience of advertising. Second, those who value and are willing to pay for no-ad streaming, use two or fewer devices simultaneously and/or have none or only one other user outside the household to add.
Notice that while adding another user is significantly less than the first household, $8 or $10 compared to $20, adding one ad-free additional user still costs more than buying a plan with ads. And, finally, a plan that allows a household to add two additional users and stream to four devices simultaneously. Now you pay for what you use and what is important to you.
Below, you can see two charts which map the changes in Netflix’s pricing and its quarterly revenue over the last seven years. (Pricing info from Business Insider and Yahoo!, revenue info from our previous Netflix article and Netflix itself: here, here, here, and here.) While the rate of quarter-over-quarter revenue growth appears to be trending down overall, as we discussed in 2024, growth picked up after the 2022 and 2024 price increases. The effects of the latest price increases remain to be seen, but if they are similar, Netflix can expect more revenue growth.
Why Did the Price Strategy Work for Netflix?
Netflix successfully changed its pricing strategy for several reasons:
- While other streaming services are competitors, each of the streaming services is partly a monopoly with the content that they produce themselves. Seriously, where else could I see The Witcher?
- They benefit from a form of the “automatic opt-in” phenomenon, where more people will opt-in when that is the default option, and they have to make a choice to “opt out.” For those who are current subscribers, they are automatically “opted in” and would have to take action to opt out.
- And, how many subscribers are unaware of the price increase when they have auto payments set up?
- But, most importantly, Netflix understood the different needs of its customers and priced its options to maximize revenue for each of the different need segments.
When a company plans to implement a publicly-unpopular price increase, it must have a thorough understanding of its customer segmentation. The Netflix pricing strategy shows success in action.
For more examples, check out our Pricing Strategy Resources. To stay on top of market trends, subscribe to the Insight to Action newsletter. And contact us to discuss all your market strategy needs.
