• by Todd Wasserman , April 20, 2022

Netflix on Tuesday announced an about-face in its stance on advertising. Previously, the streamer's chairman and CEO Reed Hastings had dismissed the idea of advertising on Netflix. In January of 2020, he noted that Google and Facebook were “tremendously powerful” at online advertising, and that it would be tough for Netflix to compete. “Long term, there’s no easy money there,” Hastings said.

Nevertheless, this week, Hastings said that with Netflix down 200,000 subscribers in the first quarter and expected to shed 2 million more in the second, the company had changed its tune. “Think of us as quite open to offering even lower prices, with advertising as a consumer choice,” Hasting said at an investor meeting.

Hastings added that figuring out an ad strategy could take months.  

We canvassed some people in the branding space to get their reactions to the news. Here are some excerpts.

Drew Kerr, brand communications specialist:

Netflix always carried itself as a premium streaming brand, and it served that well. However, they are not the only one in town any more — clearly HBO Max has been aggressively playing that card, and has no problems with an ad-based tier.

Netflix already has lots of product placement that doesn’t seem to faze anybody. Will having an ad-based tier dilute the Netflix brand? Judging from HBO Max’s success, I don’t think so -- as long as the content and experience remain at a premium level.

This is the classic case of giving your customers a “choice of yeses.” You can say yes to me at this tier or yes to me on another tier. Either way, you’re with me.

It also provides the potential of leveling up at a future date. 

Alan Siegel, CEO of Siegelvision, a New York-based branding agency:

I don't think it's a good idea. I think a high percentage of people have been very much offended by the intrusion of advertising breaking up programming, and the continuity of programming and sporting events. Finding streaming without breaks was very refreshing.

I was trained in the advertising business when they used to have guidelines about the ratio of time between advertising and programming. But now it seems to be overwhelmed by advertising and advertising. It disturbs me. So I think Netflix is going to undermine their brand loyalty and their position by advertising. I find it offensive.

Brian Wieser, global president of business intelligence at GroupM:

It’s obviously significant, the about-face culturally that it represents. I think that what it means the advertising industry is more ambiguous, because there's no specifics around what exactly they will do -- where, when and how much? You know, even like who will do the selling?

Realistically, it's most likely that they'll launch a tier that's slightly less expensive than the existing offerings and really focus more on incremental subscribers.

So realistically, they won't just offer some massive discount, because that would produce a pretty big risk to the business model.

And so it's more realistic that they'll offer some sort of incrementally cheaper offering and hope to convert some of their password-sharing subscribers or some other subscribers. And so it's not like someone who has Netflix will just suddenly see ads. That would be very, very shocking if they were to try to do that.

Ross Benes, senior analyst at Insider Intelligence:

I suspect ads would be tested before broadly rolled out and that ad loads would start light, a few minutes per hour, to begin with. I doubt they’d sell them programmatically to begin with,  as they could sell them direct for very high CPMs given how eager advertisers have been for Netflix ads.

Advertisers want as many ads jammed into as many streaming services as possible, taking up as much consumer attention as they can get.

It is a good idea if ads are included sparingly in markets with low ARPU. Otherwise, it only works if Netflix is very desperate, which seems to be the case after two bad quarters.

Marc Berman, editor in chief of The Programming Insider:

The bottom line  was, it was inevitable that this was going to happen. I've been saying it for the last number of years.

You know, Netflix is great. I mean, they charge you a monthly fee, you have access to all these great shows, there's no commercials. But at some point, they were going to max out on subscribers, and that's how they're making their money. And they were going have to find another way to monetize this. So this is totally expected.

And it definitely changes the experience of Netflix. Will other streamers start doing the same thing?