Why Netflix Adoption of Video Advertising Would Be a Total Disaster

Why Netflix Adoption of Video Advertising

Netflix is spurning a $70 billion TV and video advertising opportunity — and there’s no doubt that it’s the right thing to do.

Last week, CEO Reed Hastings unequivocally shot down the notion that the service would include any ads, now or in the future. His comments came after reports suggesting Netflix was launching preroll ads; in fact, the company was merely promoting its own shows to users.

“No advertising coming onto Netflix. Period,” Hastings wrote in a Facebook post. “Just adding relevant cool trailers for other Netflix content you are likely to love.”

Of course, companies and execs routinely deny that they’re pursuing a specific strategy — and then, perhaps, a few months later do exactly what they said they wouldn’t do.

But Netflix has consistently — and wisely — insisted it has no interest in building out an advertising play. The idea is baked into the company’s long-term view mission statement: “We don’t offer pay-per-view or ad-supported content. Those are fine business models that other firms do well. We are about flat-fee unlimited viewing commercial-free.”

If Netflix were to introduce ads, it would arguably be an even bigger debacle than the company’s botched move to split apart DVD and streaming-video subscription plans in 2011, which effectively amounted to a 60% price hike for most customers.

Sure, Netflix would stand to reap hundreds of millions of dollars in ads, if it chose to go that route. But it would suffer seriously diminishing returns — given that people hate ads in digital video even more than they hate commercials on TV.

Just look at Hulu. The presence of ads in its premium SVOD service is one of the key obstacles preventing it from scaling up to really compete with Netflix. While the company has been contemplating an ad-free offering for several years, its owners — Disney, NBCUniversal and 21st Century Fox — have grown accustomed to selling ad inventory on the site. The networks control about 90% of the ad inventory on Hulu for their respective shows, and they’re not likely to cede that revenue stream.

Netflix, by comparison, has never carried ads. And the company’s execs, it seems, are smart enough to know that inserting commercials into the mix would be an epic fail.

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  1. bententen777 says:

    How spoiled has americans become to not want to see ads? Sometimes the ads are better than the shows themselves. Some people even watch the super Bowl, just for the ads. I’m sure there’s a way netflix can run ads, and not make it irritating.

  2. Tim Hull says:

    Like you can trust anything a CEO says.. I remember Tim Cook saying they didn’t see any need for a phone bigger than the iPhone 5 when it was released.. a year later? The bigger 6 and 6 plus are released. which were clearly in development when he said that.

  3. billy says:

    Netflix is the most talked about thing on the internet. I don’t think they need the advertising for their own original series.

  4. GUSHandGO says:

    This article doesn’t even answer its own headline. Seriously lazy writing.

    Why would it be a disaster? We all assume that subscribers would leave in droves, but this article doesn’t even address it. It just rehashes the same “paid advertising isn’t part of our strategy” party line from Hastings that made the rounds last week.

    • Jason Woodson says:

      I like Netflix because of the lack of ads and its what keeps my subscription with them. I cancelled Cable and was quite happy without Comcast due to the ads. I didn’t have TV for about 3-4 years and the only reason I came back was because of Netflix not having ads. I’m fine not watching TV at all if that’s what I have to do to avoid ads.

    • BEN TEN TEN says:

      Had to look at the title again to realize that you are right about that. Which only means NetFlix needs to start running ads, because, according to this article, there’s no reason for them not to.

  5. nerdrage says:

    All you have to do is read the comments section and see the incendiary RAGE that erupts with the burning passion of a billion exploding supernovas.whenever anyone mentions “Netflix” and “advertising” within 500 words of each other.

    Nah, TV is branching off into two flavors: no ads/subscription based and ad-based/free. Everyone needs to jump into one camp or the other (Hulu, I’m looking at you). This will also include the non-franchise-blow-em-up type of movie as well, as the Brad Pitt news today shows.

  6. Fred S says:

    I have been a subscriber to Netflix since 2003, but I can say, without hesitation, that the day advertising comes to Netflix is the day I cancel my subscription to the service.

  7. No doubt Netflix shouldn’t have ads with its paid service, now or ever, but why not on its front page for non-subscribers? Twitter is in the process of trying to use that space more effectively and so could Netflix with short programming, like no longer than ten minutes which is ad supported. Yes, there could be people who go there versus signing up so maybe if it would cannibalize subscriptions I could see hesitancy but how could it with just short content?

    Then Netflix could move into the short length video market dominated by YouTube but leverage its unique strengths in content selection. With YouTube I think you need to know what you want for sure ahead of time, and how to find it, while Netflix is the recommendation wonder. They are in my opinion as good at recommendations as Google is at search while Google is NOT good at it on YouTube in my opinion which puzzles me.

    There will be multiple markets and long form is just one. So yes, protect paying subscribers who are getting that long form from ads, now and in the future, but why not go after millions more others with short form content that IS ad supported?

    • nerdrage says:

      The last place where Netflix wants to sell ads is in its own advertising, which is what netflix.com is. They don’t want any distractions or disincentives to people becoming subscribers. New subscribers are vastly more valuable than whatever piddly money they could get from selling ad space. Keep in mind, online advertising is hilariously ineffective and therefore advertisers demand rock bottom prices.

      However, somebody needs to figure out how to make a decent ad-supported/free service, which almost sounds like what you’re getting at. Netflix is the wrong place for it for the foreseeable future because they need to stay focused on making their business model work globally and can’t afford to get distracted by variations on that business model that will cause brand confusion.

      YouTube is the obvious candidate for being the ad-supported answer to Netflix. Maybe it already is. It’s more of a ridiculous junkyard of content than Netflix, but maybe that’s what attracts the young under 35 eyeballs that the advertisers are seeking?

  8. Truth Teller says:

    Exactly right!
    There should be no ads on any paid service. Show me an add in the middle of an episode or movie and I’m canceling my subscription and holding it against the advertiser.

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