Not having commercials during its programming has been a component of the corporation's appearance as a disruptive force in television. Even as the company pushed further forward with the concept of offering something for everyone, it resisted or even scoffed at the possibility of bringing in advertisements.
After the publication of a rough quarterly earnings report on April 19, which included Netflix's first net loss of subscribers in over a decade, co-CEO Reed Hastings said the streamer would now launch a less expensive, ad-supported subscription tier in the next couple of years. A company established to be leading the streaming space will now be playing catchup in the -based video on-demand (AVOD) field, as almost all of Netflix's major competitors either already have ad-supported streaming options
The sheer amount of Netflix's internet access about 222 million worldwide, and 74.6 million in Canada is easy to understand why. Netflix is the last, most significant piece of untouched property in the streaming world for ad buyers, and as the number of people who subscribe to the cable or satellite service continues to decline, it offers a huge opportunity to reach even those who are interested in the cheaper class.
According to Dallas Lawrence, the senior TV analyst at Samba TV, Netflix is the most utilized app. This is opening a huge market that might otherwise be unreachable to television advertisers.
Several sources The Hollywood Reporter spoke with stated that even as Netflix pledges to crack down on password sharing, offering an ad-supported tier would allow the company to make up some of its potential lost subscription revenue. According to Samba TV's Lawrence, "an AVOD model would immediately make those viewers monetizable."
With advertising, there is no need to inform advertisers whether or not they're earning their money. It's also possible to share data, something that the streaming world as a whole and Netflix is very limited to do.
"In the advertising world, one of the challenges is some level of transparency and third-party auditing and reporting. Advertisers are looking for some proof points," says Jim Lombard, the CEO of Tetra TV, who is connected TV advertising. "[Netflix has] been slow to disclose that stuff."
The publicly available viewing data for streaming programming remains limited, even as most major media companies Disney, Warner Bros. Discovery, NBCUniversal, and Paramount Global have incorporated ads into their platforms (Hulu, HBO Max, Peacock, and Paramount+, respectively), and thus are likely sharing their streaming ratings with buyers, even as they keep virtually all of that data away from public consumption.
Despite the repercussions of data it already has about its users, Netflix is likely to follow a similar model, keeping its large but not very deep public reporting. Last week, Hastings said the firm will outsource the ad-tech aspects of the business rather than building its own system.
The process of building an ad business will take a long time. It isn't a short-term fix because once you begin offering a lower-priced strategy with advertising as an option, some consumers take it, Hastings said of the April 19 earnings call. And we have a large network that is probably quite pleased where they are. So think of it as it will phase in over a few years in terms of being substantial volume.
Several sources stated that the availability of a number of professional advertising platforms from other companies would be likely to be faster and cheaper than building something from scratch.
Netflix has also taken a few small steps toward acknowledging third-party data. When Nielsen released its first platform rankings ten months ago, claiming that streaming had overtaken broadcast television in part of viewers' time, they received praise from Netflix co-CEO Reed Hastings, who said: "Nielsen in is a good place to referee or score-keep how streaming is changing the television landscape."
According to Tetra TV's Lombard, the industry's desire for a public ad space on Netflix may even give the company some leeway in how open it is to sharing information with advertisers.
In the first days, Netflix can escape from being a black box, because so many people want to get access to it, says Lombard. Scaling is tough, and you require good talent. It would be difficult for them to not succeed.