Commentary

Bulletin: Netflix Is Not Accepting Advertising

Sometimes people wait for a shoe to drop even when it’s evident it’s not going to happen.

So it seems to be with the unexciting revelation that on some delivery systems like TiVo and Xbox, Netflix has been showing promos for other Netflix features, as pre-roll before the program or movie you’re there to watch.

That is exactly the way HBO and Showtime does it, on cable, and how HBO Go and HBO On does it online, and how programmers worldwide hype their wares. If you have 60 million customers, like Netflix does, and a pretty lousy user interface (which I’d say Netflix also has), then it might be a good idea to use your own platform to do some self-promoting.

That’s a far cry from some headlines screaming that Netflix is now showing ads, prompting some nervous subscribers to proclaim, on Twitter and elsewhere, that when that happens, they’re quitting.

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Well it’s not happening. In a statement, Netflix said, “We are not planning to test or implement third-party advertising on the Netflix service. For some time, we've teased Netflix originals with short trailers after a member finishes watching a show. Some members in a limited test now are seeing teases before a show begins. We test hundreds of potential improvements to the service every year. Many never extend beyond that.”

Netflix CEO Reed Hastings posted an unequivocal denial on his Facebook page.

"No advertising coming on to Netflix,” he wrote. “Period."

But what’s he really saying? Exactly that.

While Hulu charges for its service, and shows a few ads, it’s generally true that on the Internet, introducing ads on a service people are paying for is an experiment smart operators are smart to avoid.

Still, the idea of advertising is powerful, because Netflix is spending heavily on content and is getting back pennies in net income. For the first three months of 2015, Netflix had revenue of $1.3 billion, but net income of just $24 million. Some good old Procter & Gamble money would look pretty good.

Indeed, WPP chief executive Sir Martin Sorrell, said at a Financial Times conference a couple months ago that it seemed impossible for Netflix to avoid succumbing to advertising to finance its wildly aggressive spending on content.

UK’s Guardian reported that Netflix has about $9.5 billion in content obligations over the next five years. “In those circumstances,” Sorrell said, “Netflix will have to raise subscription prices, and we know what happened last time, or have alternative revenue generation opportunities, one of which will be advertising.”

What happened the last time was in 2011, when Netflix raised rates and lost 800,000 subs. But it has gradually raised subscriptions since, without a lot of furor.

It’s more likely, it seems to me, Netflix creates a second service, that is cheaper or less expansive, that does show limited, very carefully considered advertising. But really, raising subscription costs, which are still less than HBO On, and about the same as CBS All Access, wouldn’t be such a dangerous step.

Netflix has been a marvel at eliciting subscriber support since Netflix’s ridiculous idea of launching the separate Qwikster crashed and burned in 2011. I think we can all agree 2015 and online video is nothing like 2011 and online video back then.

THE VIMEO BOUTIQUE:As if on cue, Vimeo today said it will help its creators be able to charge fans a monthly fee for watching commercial-free videos, and while Vimeo might give guidance, it’s up to those video producers to figure out a fair price. It’s an add-on to Vimeo on Demand, which lets consumers buy content piecemeal. This wrinkle would seem to give creators a clearer sense of their revenues, and also be a way to make sure they keep producing it.

pj@mediapost.com

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