Only A Matter Of Time Before Netflix Takes Advertising?

Sharply divided opinions are focused on Netflix’s future. Some believe the company will continue to soar; others believe it’s a disaster waiting to meet its media maker.

In that regard, one veteran media agency buying executive, speaking with TV Watch, asked an incredible question: “When will Netflix start taking TV advertising?”

Though Netflix CEO Reed Hastings swore that will never happen, some analysts believe the wild spending for TV-movie content by the company — a projected $5 billion for programming in 2016— means Netflix will have to answer to the financial media gods one day.

That $5 billion will be more than HBO, Showtime, Amazon, and Starz spent on programming in 2014 -- combined.

The positive news that could keep Netflix out of clutches of TV-video marketers? One analyst estimates the company could grow by triple in five years to an eye-popping 180 million worldwide customers.



With its reasonable price point of $8.99 a month, you can see why some consumers can’t turn down a run with Netflix. Netflix has over 62 million global subscribers and over 40 million in the U.S.

And cord-cutters? Worried entertainment consumers are an easy target, those who are spending $90 to $125 a month and need financially to make a change.

Analysts like to make comparisons to that one big pay TV player:  HBO. That similarity isn’t correct. Consumers are using Netflix as an TV service “anchor” as a partial replacement for slimming down on big cable TV channel packages.Netflix has the added benefit of allowing viewers to blow through a year-long 13-episode series in a weekend.

But that added pressure to ramp up production in wildly accelerated ways, bolstering Netflix’s original TV and movie slate, has caused concern. So, Netflix will need to find a way to keep that very modest $8.99/month price tag around for consumers. And advertising might be an answer.

Some history here: AMC — the network of “Walking Dead” and “Mad Men” — started off as a cable channel with no advertising. It just ran old movies. 

Then over time it gradually added “sponsorship”-like advertising opportunities, messaging that would appear before and after programming. Now we are left with a network with traditional TV advertising/commercials.

PBS programming has consistently added sponsorship/advertising messaging — including video — before and after TV programming content. 

So could Netflix nudge into a marketplace with some kind of digital “pre-roll” advertising, stuff digital video consumers are now used to? Better still, could Netflix also offer up the option to viewers to skip the pre-roll ad after five seconds?

More than other new digital platforms, Netflix has the added burden of dealing with a massive misstep of just few years ago, when it wanted to raise prices by separating its now DVD by mail business from its new and fast growing streaming video service.

Netflix will continue to walk the line with customers. But if it will never consider adding some revenue-producing advertising, how will its business model evolve?

10 comments about "Only A Matter Of Time Before Netflix Takes Advertising? ".
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  1. Douglas Ferguson from College of Charleston, April 21, 2015 at 2:32 p.m.

    If Netflix poisons the well with advertising, then another company will become the new Netflix. I appreciate your argument, but the boat has sailed on advertising. A whole generation of viewers is addicted to the ad-free model and they are willing to pay a premium to avoid commercials. Times change. Models get disrupted. It accomplishes little to speculate on how soon advertising will return to the good old days, because (as newspapers have discovered) the hands of time cannot be turned back.

  2. Charlie Deane from Wildmoka, Inc., April 21, 2015 at 2:40 p.m.

    Well, for one, Netflix could start doing pay-per-view live events, or pay-per-view 1st window releases... They already have the technology working everywhere, and the credit cards of 60 million people: how long until they start doing one-offs at 6.99 apiece?

  3. Claudio Marcus from FreeWheel, April 21, 2015 at 3:12 p.m.

    The comment that states that "A whole generation of viewers is addicted to the ad-free model and they are willing to pay a premium to avoid commercials" does not really resonate considering that Facebook, Google and most popular digital platforms are ad supported. Where is the equivalent of subscriber supported digital content? The reality is that Netflix could offer the option of having a lower subscriber fee for ad supported content, while still offering the option for a higher ad free subscription level, the equivalent of premium ad free pay-TV like HBO or Showtime.

  4. Thomas Siebert from BENEVOLENT PROPAGANDA, April 21, 2015 at 3:29 p.m.

    I think if Netflix begins accepting any form of advertising you will see a backlash that will make the Flixster debacle look like pillow fight. 

  5. Thomas Siebert from BENEVOLENT PROPAGANDA, April 21, 2015 at 3:32 p.m.

    Whoops. Qwikster, not Flixster. Flixster's the movie app on my phone. 

  6. Ed Papazian from Media Dynamics Inc, April 21, 2015 at 4:23 p.m.

    It's inevitable that Netflix and some other ad-free TV content services will allow advertising---even at the expense of angering a relatively small percentage of subscraibers who may cancel out. The increased income will be far greater than the lost subscriber revenue. In fact, the acceptance of ad dollars, if handled wisely by limiting the amount of commercial clutter, will heighten ad impact which, in turn, will allow for premium CPMs. Moreover, with a huge spike in ad dollars, the price to subscribers may be held in check or, possibly, be reduced,  which is another plus to be considered.

  7. Terry Rushbrook from The Marketing Shop, April 21, 2015 at 7:25 p.m.

    Is nobody doing the math?  With 62 million subscribers their annual revenue stream is about $6.5 billion.  Potential to grow to 180 million in five years - close to $20 billion and spending about a quarter of that on programming.  How does this compare to the conventional TV model?  Why take advertsing to piss a million or so off?

  8. Ed Papazian from Media Dynamics Inc, April 21, 2015 at 7:47 p.m.

    @Terry, assuming that your numbers are accurate----and I somehow doubt that Netflix will get to 180 million subs in five years, but I wish it success----the trade-off between losing a million subscribers who get pissed off about the ads--- but gaining, say, $2-4 billion in ad revenues should be obvious. Also, Netflix would, I assume, have the sense to use much shorter commercial breaks than "linear TV", which would not bother audiences so much. If it develops that more and more stand alone services, including those eminating from the broadcast TV networks and the basic cable channels, carry limited ad loads, most viewers will come to accept this for Netflix as well----especially if they are told that it is a way for Netflix to keep subscription prices in check and this seems to be the case. Of course, it may turn out that advertisers are unwilling to pay the premium CPMs that are required to drive ad revenues to the point where some subscriber defections  are tolerable, but that remains to be seen. If I were Netflix, I would do some math on this and, possibly, some dry runs with several major media buying shops to see. 

  9. Ashish Chordia from Alphonso Inc, April 21, 2015 at 8:57 p.m.

    We made an opene bet about this with some friends and posted publicly here:

    1000 days from May 2014 - so now down to just over 2 years, we will see Netflix release a free ad supported product. 

  10. Paula Lynn from Who Else Unlimited, April 30, 2015 at 7:23 p.m.

    Comcast is charging for past episodes of programs such as Mad Men without fast forwarding. As they continue to do so with probably increasing the practice, how much could it factor in people paying a couple of dollars more per month for Netflix with or a without a pre-roll (or such) ?

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