×
You will be redirected back to your article in seconds

Netflix Insists It Won’t Move Into Selling Advertising

Netflix wants you to know: It doesn’t have any plans now or in the future to start running commercials on its streaming service.

Company execs have have regularly explained that being ad-free is a core part of Netflix’s attractiveness to consumers, and the strategy has been a standard part of its “Long-Term View” mission statement for investors: “We don’t offer pay-per-view or free ad-supported content. Those are fine business models that other firms do well. We are about flat-fee unlimited viewing commercial-free.”

On Wednesday, as part of announcing second-quarter 2019 earnings, Netflix spelled out in no uncertain terms that it’s not going to be putting ads in front of its viewers.

“We, like HBO, are advertising free,” the company said in its letter to investors. “That remains a deep part of our brand proposition; when you read speculation that we are moving into selling advertising, be confident that this is false. We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.”

There’s been regular speculation that Netflix could be tempted into rolling into selling ads — or that the company would be forced to in order to sustain its high levels of content spending.

In a report last month, analysts at Nomura’s Instinet calculated that Netflix could generate more than $1 billion in ad revenue per year if it launched a plan with advertising, with $700 million of that dropping to the bottom line.

But the analysis of Netflix’s potential for advertising doesn’t fully account for the fact that any ad-supported service from Netflix would cannibalize its existing business (i.e., subscribers would move down to cheaper ad plan from ad-free tiers). Moreover, it doesn’t factor in the investment that would be necessary to stand up an advertising platform and sales force.

Industry observers have ruminated about Netflix’s advertising opportunity given the long-successful dual-revenue streams of TV networks (which make money through both ads and distribution fees). Then there’s Hulu, which says it generated $1.4 billion in ad revenue in 2018 and that about 70% of its viewers are on the $5.99 plan with commercials.

During Netflix’s Q2 video interview Wednesday, CFO Spencer Neumann said the company expects to continue to increase margins — without selling advertising — by increasing the scale of its user base. Netflix projects that it will be able to hit a “multiple” of its current 151.6 million subscriber base.

“Our calculus now for building a global network is that we’re best served to focus on that single revenue stream… and offer [the service] at a reasonable price,” Neumann said. “We think the subscription model is a terrific model for us.”

Popular on Variety

More Digital

  • Netflix-logo-N-icon

    Netflix Is Testing Human-Curated 'Collections'

    Netflix, a company powered by the strategic use of data, relies on artificial intelligence to suggest new content that its streaming customers are likely to be interested in. Now it’s looking to potentially add a human touch: The company has launched a limited-scale test of “Collections,” a new feature that presents groups of movies and [...]

  • wolves in the walls emmy

    Neil Gaiman VR Experience 'Wolves in the Walls' Wins Primetime Emmy

    “Wolves in the Walls,” the virtual reality (VR) experience based on Neil Gaiman’s children’s book by the same name, has been awarded with a Primetime Emmy for outstanding innovation in interactive media. The experience has been produced by San Francisco-based immersive entertainment startup Fable, which puts a big effort on making the viewer a participating [...]

  • The Void San Francisco

    The Void Teams Up With Sony Pictures for New Location-Based VR Experience

    James Murdoch-backed virtual reality (VR) startup The Void has teamed up with Sony Pictures Virtual reality to produce a new location-based VR experience, according to Curtis Hickman, the startup’s chief creative officer. Hickman revealed the partnership in a conversation with Variety this week, during which he also outlined plans to bring more original IP to [...]

  • US President Donald J. Trump speaks

    Apple Stock Down 4.6% After Trump ‘Orders’ Companies to Leave China

    Apple’s share price was down around 4.6% Friday at the close of the market, to $202.64 per share, after President Trump took to Twitter to “order” U.S. companies to leave China. The slide came amid a market-wide sell-off, with the NASDAQ sliding 3%, and the Dow dropping 623 points. Trump’s edict was a response to [...]

  • Former head of CAA China Peter

    Peter Loehr to Spearhead Asia Expansion of Genies Avatar Venture (EXCLUSIVE)

    Peter Loehr, the former head of CAA in China, and seasoned music executive John Possman have been tapped by digital avatar company Genies to lead its expansion into Asia. The company’s proprietary avatar technology allows users to express ideas, thoughts and feelings in a different way from text, audio and video. Within the app and [...]

  • Tim Connolly - Quibi

    Quibi Head of Partnerships and Advertising Tim Connolly Departs

    Tim Connolly, the former Hulu exec who joined Quibi last year as head of partnerships and advertising, is leaving the mobile TV subscription startup founded by Jeffrey Katzenberg. Connolly’s exit comes eight months ahead of Quibi’s planned April 2020 debut. A Quibi rep declined to comment on his departure, which was first reported by Business [...]

More From Our Brands

Access exclusive content