Every few months, almost like clockwork, some professional provocateur or another comes out of the woodwork claiming Netflix is preparing to embrace advertisements. Of course, in doing so this would cannibalize the entire foundations on which the streaming pioneer has grown to become the global success story it is today. Admittedly, here at Faultline Online Reporter we have a bit of reputation for being connoisseurs of controversy, yet unlike assertations made by NBCUniversal and Hulu top dogs recently, we do so with a level head.
Don’t get us wrong, we aren’t writing off the idea of Netflix integrating ads altogether someday, perhaps doing so eventually in an unorthodox manner, but we are merely articulating that it wouldn’t make one bit of sense in today’s Western markets, while there is a smidgen of scope for markets like India where the appetite for AVoD is greater.
More so than any other OTT video service on the planet, Netflix is carpet bombed with criticism whenever it implements a price hike, almost like a rallying call for the most alarmist of analysts declaring the end of the road for Reed Hastings and Co. Inevitably, the dust settles and normal service resumes with subscribers continuing to sign up in droves, but for how much longer? Simply put, Netflix cannot go on hiking its subscription fees forever as original content costs balloon if the company ever wants to be profitable, and seemingly the only alternative is ad revenue.
That was the point of NBCUniversal’s chairman of advertising Linda Yaccarino, speaking alongside Hulu’s SVP of advertising sales, Peter Naylor, at the recent Cannes Lions event in France.
“When you have to make more programming that’s not guaranteed to be a hit, you have to spend more money, you have to build your brand, you have to help the consumer discover your stuff – the price will go up for the subscription, and it would be logical to mitigate those increases to take ads,” said Yaccarino, according to CNBC.
But crucially – on the slim chance Netflix ever decides to test the advertising waters – it will likely look worlds away from traditional TV advertising. Hulu is experimenting with interactive ad formats and banner ads during paused programming only, for example.
Naylor said, “The future of ad-supported media does not resemble what we’re doing today in terms of ad load or even ad shape. It can be interactive advertising or nonintrusive advertising. I think you’re going to see a lot of innovation from all of these new OTT providers because we’re allowed to. We’re not married to the clock. Fifteen and 30-second ads were a product of linear TV. When everything’s on demand and served through an IP address, the ad experience is going to dramatically improve.”
Research from Instinet, part of US firm Nomura, reckons Netflix is missing out on a sizable revenue stream by swerving ads. Even advertising guru Sir Martin Sorrell of WPP said back in 2015 that Netflix would have to embrace ads if the company ever wants to turn a profit. But fast forward four years and Reed Hastings is resistant as ever to the idea, at least on the surface. Of course, Netflix infamously trialed ads on select accounts last year with a skippable option, not for third party products but simply trailers promoting its own content, but the trial wasn’t well received.
A European survey from earlier this year found that 57% of subscribers would immediately cancel in the event Netflix added ads. Yet it’s worth noting that similar sentiments are echoed when Netflix hikes its prices, and little ever changes.
Ultimately, a Netflix representative described these comments from NBCU and Hulu execs as “wishful thinking from an advertising conference.” We agree.