Yes, there has been much speculation that Netflix will soon unveil an ad-supported strategy -- possibly introducing hybrid models that defray the cost of its premium subscriptions -- but if the past is prologue, it’s not going to happen. My reasoning is the pay TV services marketplace.
When I began covering multichannel TV in the early 1980s, there was virtually the same speculation -- and almost the same kinds of consumer surveys -- speculating that seminal pay TV service HBO would eventually introduce advertising, or hybrid ad/subscription models. Nearly four decades later, it sill has not.
The reason is simple: Why in the world would you trade an engrained, dependable, residual subscription model for something as volatile as advertising demand? If your goal is building equity and a return on shareholder investment, you wouldn’t.
The big difference between HBO and Netflix today is its ubiquity. Netflix is the most distributed subscription OTT service by a wide margin: half again as big as Amazon Prime, and about twice the size of Hulu, according to eMarketer’s current U.S. viewer estimates.
And in addition to how much it has penetrated in the U.S., Netflix has tremendous upside internationally. Nearly three-quarters of its coverage comes from the U.S. and western Europe.
While there is also considerable speculation that Netflix’s share of the OTT marketplace will begin to founder as traditional media companies begin ramping up marketing of their own subscription OTT services, Netflix has attained a status that will be hard to usurp: It is the water-cooler conversation of the direct-to-consumer video marketplace.
The biggest impact of traditional media companies into the OTT subscription marketplace, says eMarketer Forecasting Analyst Eric Haggstrom, is that they likely will pull popular licensed content that they own from Netflix’s library.
“This will cause Netflix to add new U.S. subscribers at a lower rate than it has historically,” he speculates, although, he adds, “Netflix’s investments in significant quantities of high quality, original content and its AI-powered user interface should keep engagement high and subscriber churn low.”