Netflix Running Ads: Shift May Be Inevitable

In a recent interview, outgoing WarnerMedia CEO Jason Kilar predicted that Netflix would start running ads within the next three years.

“I suspect the religion [Netflix] currently has about not having ads will change in time because offering consumers lower price is a really good strategy,” Kilar said.

Now, with Netflix’s subscriber growth slowing, Netflix is expanding by moving into gaming -- and, possibly, allowing advertising. As Ben Thompson recently pointed out in Stratechery, adding an ad-supported tier would expand Netflix’s subscriber base and allow Netflix to raise prices. Ideally, Netflix could offer an entry-level tier with ads and a premium, ad-free tier below that.

Viewers could then consider whether they wanted to pay an extra $10 a month to never see ads, or save the money and interrupt “Bridgerton” with ads. As proof that an ad-supported Netflix tier could work, look at Hulu, which makes more per subscriber on its ad-supported tier. Three out of five new Hulu subscribers go for ad-supported viewing, according to Ad Exchanger.

Kilar sees it as “inevitable” that Netflix will introduce ads, because there’s no other way to get to a billion users. (Netflix currently has 209 million users, worldwide.)

On the other hand, Netflix currently has 34% of streaming minutes, per Nielsen. Netflix used to have the streaming space to itself, but now vies with Disney Plus, Amazon Prime, Hulu and Peacock Premium, among others.

Personally, if given the choice of paying, say, $25 a month for an ad-free version of Netflix or paying just $10 for a version with ads, I would consider the latter, if there was restraint, like maybe a maximum of two 30-second ads every 15 minutes. If the advertising was targeted and followed my preferences (no shouting, a cutoff at 30 seconds), then I might be inclined to do so. If not, there are other options out there.

3 comments about "Netflix Running Ads: Shift May Be Inevitable".
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  1. Ed Papazian from Media Dynamics Inc, April 13, 2022 at 7:38 a.m.

    Todd, I was one of a number of people who said that Netflix should be offering an ad-supported service  years ago which was a time when Netflix totally dominated streaming and there were virtually no CTV or AVOD competitors operating. Then Netflix might have cleaned up---at the expense of the broadcast TV networks in particular. But now, it's probably too late for anything other than a "me too" operation as by the time Netflix  recruits enough AVOD subs to attain a meaningful reach base and by the time it hires a staff  of experienced people with strong connections to the time buying community  as well as the attendant research and packaging teams to support them---we are talking two years from whenever the "go" decision is made Also, Netflix is not going to attract premium CPMs if it segregates commercials to pre- and post- roll positions. . If Nextlix thinks that it can do such a job programmatically and that it's main competitors will be Google and FB ( Meta )-- the latter-as Reed Hastings recently opined----then it would be in for a rude awakening.

  2. James Smith from J. R. Smith Group, April 13, 2022 at 7:58 a.m.

    Given Netflix is building a substantial in-house library of titles, there are several outside-the-box options, such as medium-tail micro-channels. But, the cost of content will generally increase and the competitors have already started retaining product for their own OTT offerings.  I'm not sure if a huge subscriber base target (1 billion subs) is the right metric. Anyway you carve it, the need for increased revenue and continued subscriber satisfaction are constants.

  3. John MacLane from Private, April 13, 2022 at 11:08 a.m.

    I'll be the devil's advocate here and say that as streaming platforms morph and devolve back into traditional TV channels with ads and an overwhelming number of platforms to choose from, albeit with the ability to choose what to watch rather than adhering to a set schedule, we're likely going to see subscriber numbers start to stumble on some platforms as digital piracy starts cropping up again.

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