In an earnings letter to shareholders released Thursday, Netflix said it expects its ad-supported tier to reach 40 million viewers by late 2023.
The streaming giant also announced that it has signed a multi-year deal with Lionsgate to produce new original series and films for the service.
Netflix has been testing an ad-supported plan in some markets since last year. The company has not said when or if it will roll out the option globally.
“We think there’s a huge opportunity in offering an ad-supported version of our service that will bring in new audiences and new revenue streams,” Netflix CEO Reed Hastings said on a call with analysts Thursday. “We’re still learning a lot about how best to do this.”
Hastings said that the company is still in the “early days” of testing the ad-supported tier and declined to give more details about the plan.
Netflix has long been opposed to running ads on its platform, but the company has been under pressure to find new sources of revenue as it spends billions of dollars on content.
The Lionsgate deal will add a slate of new original series and films to Netflix’s already massive library. The agreement includes two new series: “Hitman’s Wife’s Bodyguard,” starring Ryan Reynolds, Samuel L. Jackson, and Salma Hayek; and “The Continental,” a spin-off of the “John Wick” franchise.
“We are thrilled to be expanding our relationship with Netflix in a big way with a broad and robust slate of new programming,” Lionsgate CEO Jon Feltheimer said in a statement.
The deal is the latest example of Netflix’s aggressive push into original content. The company has said that it plans to spend up to $15 billion on content this year, up from $12 billion last year.
Netflix has been one of the biggest beneficiaries of the coronavirus pandemic as people around the world have been stuck at home and turned to streaming services for entertainment. The company said Thursday that it added 37 million paid subscribers in the first three months of the year, more than double its forecast.
Despite the strong growth, Netflix warned that the pandemic could cause “significant uncertainty” in the coming months. The company said it is seeing some slowdown in new subscriber additions as people return to work and school.
“It’s still early days in the pandemic, and things could change again,” Netflix said in its letter to shareholders. “We’ll continue to monitor the situation closely.”
Netflix shares were down about 2 percent in after-hours trading Thursday. The stock is up more than 50 percent this year.