Netflix Explains Its Aversion To Taking On Advertising, Again

Against the backdrop of growing premium video competition, Netflix -- during its fourth-quarter 2019 earnings phone call on Tuesday with analysts -- reiterated its opposition to adding an advertising model to its video packages.

Reed Hastings, chief executive officer of Netflix, cited the company’s approach to focus solely on its consumers -- as well as looking to avoid a formidable online advertising industry with powerful players: “Google and Facebook and Amazon are tremendously powerful at online advertising.... because they're integrating so much data from so many sources.” 

Hastings added: “To grow [to a] $5 billion or $10 billion advertising business you have to rip that away from other advertiser [platforms].... Amazon, Google and Facebook -- which is quite challenging.”

In this regard, Hastings says Netflix is more careful about its customers' data -- which is a positive: “We're not integrating everybody's data. We're not controversial that way.”



Netflix’s current model gets the company to greater revenue and profits, Hastings said, “because we don't have the exposure to something that we’re strategically disadvantaged at which is online advertising against those big three, which over the next 10-years are just going to integrate incredible amounts of data about everybody.”

Some analysts have projected that a still sizable Netflix negative cash flow could push the company to offer an advertising option to its products. For the fourth quarter 2019, negative free cash flow was $1.7 billion, up from $1.3 billion in the fourth quarter 2018.

Hastings said, with regard to cash flow: “We're on the glide path slowly towards positive free cash flow. We're excited about that but that's not coming from shrinking back our content spending. That's coming from the increase in revenue and operating income.”

2 comments about "Netflix Explains Its Aversion To Taking On Advertising, Again".
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  1. Ed Papazian from Media Dynamics Inc, January 22, 2020 at 4:37 p.m.

    I find it incredible that Hastings thinks that most of the ad dollars that would be earned by an ad-supported platform offered by Netflix would come from Amazon, Google and Facebook. Wow, no wonder he is hesitating as most of those dollars would be low CPM buys made by local mom and pop and direct response/search/sales promotion "advertisers". Doesn't he realize that the opportunity would really be to compete against the broadcast TV networks and the larger cable channels for national ad dollars---branding dollars by sophisticated advertisers--- at much higher CPMs than are paid for "linear TV" ad time? In any event, it may now be too late for Netflix to make a real killing with an ad-supported platform---as the best time in the U.S. was probably 2018-2019. Sigh!

  2. Bill Hague from Magid replied, January 22, 2020 at 7:09 p.m.

    Spot on, Ed.
    The other comment I found interesting/puzzling was NFLX is "strategically disadvantaged" to compete for ad dollars. Their data could compete against the broadcast and cable nets, AVOD players, and vMVPDs all day long! 

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