Netflix’s second quarter earnings report is heavily anticipated not just for revenue figures but for insights into its advertising strategy, which aims to generate about $3 billion in ad revenue this year. Facing stiff competition from YouTube—now leading U.S. television viewing with a 13.4% share while Netflix’s share has slipped to 7.9%—Netflix is expanding its content mix to include more creator-led and publisher-produced videos. These lower-cost, shorter videos from partners like the Stokes Twins, Meredith Hayden, and publishers such as Condé Nast and Hearst are intended to boost advertising inventory rather than replicate YouTube’s audience.

The fundamental challenge Netflix faces is arithmetic: advertising revenue requires a large volume of impressions, which depends on time spent viewing. Yet, viewing hours for Netflix’s major premium titles are showing signs of decline, with reports indicating a drop of over 50% to 70% in viewership for some second seasons. Meanwhile, content costs keep rising, expected to increase by about 10% in 2026. By incorporating cheaper, abundant videos, along with podcasts and branded content, Netflix aims to increase total viewing hours, effectively manufacturing more ad inventory to support its advertising revenue goals.

Investors will closely monitor the upcoming Engagement Report and quarterly earnings call for any shifts in how Netflix measures and reports viewer engagement. Management has already hinted at emphasizing “member quality” over raw hours, potentially redefining success metrics to focus on the value of intentional viewing rather than total time. This shift echoes a traditional television strategy to defend against shrinking audiences and comes as Nielsen updates its own measurement techniques, making the competitive landscape increasingly complex.

The bigger strategic question is whether Netflix’s move into lower-cost, ad-supported content will dilute its premium brand or successfully open new revenue streams without losing subscribers. Netflix remains unique among major streamers in lacking a parent company to back the transition. As it builds out its advertising inventory, the company risks moving away from its curated “Costco-like” model toward a broader “Walmart-like” offering. The Q2 results and Engagement Report will reveal if Netflix’s inventory expansion is meeting the critical need for more monetizable viewing time and if the streaming giant can sustain growth amid these challenges.