Netflix: 'Ad-Supported Internet Video Big Force In The Market'

Netflix may not be adding advertising to its service in the near future, but that doesn’t mean the company is bearish on ad-supported video services.

In its fourth quarter letter to shareholders, Netflix addressed the competitive landscape, and was surprisingly upbeat about ad-supported streaming options from Facebook, YouTube and others.

“With their multi-billion global audiences, free ad-supported internet video is a big force in the market for entertainment time, as well as a great advertising vehicle for Netflix,” the letter says.

In other words: Yes, these free video services are taking up more consumer time, but we aren’t that concerned about it.

Netflix executives were similarly nonchalant about the upcoming competitive service from Disney, which is scheduled to launch in 2019. In the shareholder letter, Netflix noted that Disney’s service will have “a beloved brand and great franchises,” but added that “the market for entertainment time is vast and can support many successful services.”

“In addition, entertainment services are often complementary given their unique content offerings,” the letter added. “We believe this is largely why both we and Hulu have been able to succeed and grow.”

"I know I’ll be a subscriber of [Disney's service]," Netflix CEO Reed Hastings said on the company's earnings call Monday.

The shareholder letter comes less than a week after CBS’ top ad sales executive, Jo Ann Ross, speculated that Netflix could soon begin to accept some form of advertising once subscription growth begins to slow.

“Maybe they will offer an ad-free version or a lower-cost version with ads in it,” Ross said at the AdExchanger Industry Preview event in New York last week. “If they are spending that kind of money, they are going to look for other ways to monetize.”

Advertising on Netflix has long been a hot-button topic. Many executives in the advertising world have argued that the company will inevitably turn to that lucrative revenue stream eventually, while Netflix executives, most notably Hastings, have been vocal opponents of adding advertising to the service. Hastings reaffirmed that point of view on Monday.

"It is a core differentiator," he said about keeping Netflix commercial-free. "We are having great access on the commercial-free path. That is what our brand is all about."

Of course, based on the company’s earnings results Monday, the company may not be in a rush to add advertising just yet. U.S. memberships rose by two million year over year, and by more than six million globally -- both numbers beating Wall Street's expectations.

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