Netflix's advertising and cheap subscriptions are profitable: estimated annual revenue of 3 billion

Netflix Inc is pleased with the early returns on its new ad-based subscription tier after launching it a few months ago, with company executives now believing the cheaper $7-a-month option could bring in more than $3 billion in revenue annually.

According to DEADLINE, Netflix co-CEO Greg Peters talked about the success of the ad-based subscription tier in an interview during the company's fourth quarter earnings report. He said that the growth of the new cheap option is "steady", bringing new users rather than conversions of existing members. In addition, their engagement is consistent with that of high-paying customers so far.

“We’re just getting started,” Peters said. “We’re constantly improving and we see where the trajectory is going.”

Looking ahead, Netflix CFO Spence Neumann knows that Hulu is the top competitor in ad-based TV streaming and has a huge head start because it was the first platform to launch the service. But Neumann believes Netflix will catch up. "We won't be bigger than Hulu in the first year, but we expect to be as big or bigger than Hulu over time, of course, just in our U.S. market, but will continue to expand from there."

Netflix added more than 7 million subscribers in its fourth quarter, the first to include an ad-based tier that launched in November and features about four minutes of ads per hour.

In addition, Netflix founder and co-CEO Reed Hastings is about to take over the chairman position, and the streaming service is currently trying to crack down on the sharing of account passwords between users.