Commentary

Netflix Remains Ad-Free, But Rivals Think That Will Change

Netflix continues to spend a lot on programming -- which brings up the obvious question. How can it pay for it?

Industry executives don’t think charging $12 or so a month is enough. That brings up advertising, something Netflix executives always nix.

But senior NBC and Hulu advertising executives believe Netflix’s time has to come. In order to grow, Netflix needs more than subscription fees, especially to continue to pay for content, now around $8 billion or more a year.

Veteran TV networks ad sales executives -- speaking at Cannes Lions -- believe if Netflix does go the ad way, it probably won't look like traditional TV breaks. It might be something way less obvious — which for many would just defeat the purpose of advertising in the first place.

Netflix has 60 million U.S. subscribers, around 140 million subscribers, worldwide -- with expectations it could hit 300 million globally. All this has some brand advertisers salivating. Think of the scale! Think of the reach!

Historically, the closest Netflix competitor in the subscription VOD service space is Hulu. Peter Naylor, senior vice president, advertising for Hulu, says 70% of Hulu’s total subscribers (out of 28 million) come for its $5.99 a month limited-advertising service. Hulu looks to pull in over $1.8 billion in advertising this year.

Just think what Netflix could pull if it got the same results from its nearly 60 million U.S. subscribers. You do the math.

Netflix isn’t completely without brand advertising exposure. Coca-Cola recently relaunched its New Coke brand on Netflix-produced TV series “Stranger Things,” as part of a product-placement deal.

Does this mean Netflix is tipping its hand -- or something else?

For decades, HBO, more or less a Netflix predecessor, being an premium ad-free cable TV service, has worked in product-placement deals on shows it produces. Transitioning into the digital TV platforms, HBO is still ad-free.

One answer for Netflix is simple. Netflix could start up a new company -- with a different name -- keeping it clear from the Netflix moniker. The downside: that kind of advertising for a new TV service becomes much harder.

2 comments about "Netflix Remains Ad-Free, But Rivals Think That Will Change".
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  1. Ed Papazian from Media Dynamics Inc, June 24, 2019 at 10:57 a.m.

    As I have said in many posts, it's only a matter of time---but ,  if Netflix waits too long its new streaming rivals may get the cake and eat it first---leaving what for Netflix? Also, Netflix is seen mainly as a broadcast network primetime substitute with a better audience, demographically. Placing lots of commercials in off-network reruns---so far the mainstays of Netflix's audience tonnage---is much less of an attractive proposition---especially if much higher CPMs are demanded. Anyway---we shall se----won't we?

  2. nerd rage from Nerdrage Inc., June 24, 2019 at 8:26 p.m.

    One day, Netflix may have an ad-supported tier. By then, the streaming business will be paid/ad-free and ad-supported/free. Big servcies can have one of each flavor. The audience that loathes ads is older, richer and better educated. Those who will tolerate ads are younger, poorer and there are a lot of them in the developing world. But for the short term, Netflix can't afford to confuse the market by dabbling with ads, not with Disney and Warners coming later this year, and ad-free.

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