Only A Matter Of Time Before Netflix Takes Advertising?

A media critique by Wayne Friedman Tuesday, April 21, 2015 Sharply divided opinions are focused on Netflix’s future. Some believe the company will continue to soar; others believe it’s a disaster waiting to meet its media maker. In that regard, one veteran media agency buying executive, speaking with TV Watch, asked an incredible question: “When will Netflix start taking TV advertising?” Though Netflix CEO Reed Hastings swore that will never happen, some analysts believe the wild spending for TV-movie content by the company — a projected $5 billion for programming in 2016— means Netflix will have to answer to the financial media gods one day. That $5 billion will be more than HBO, Showtime, Amazon, and Starz spent on programming in 2014 -- combined. The positive news that could keep Netflix out of clutches of TV-video marketers? One analyst estimates the company could grow by triple in five years to an eye-popping 180 million worldwide customers. With its reasonable price point of $8.99 a month, you can see why some consumers can’t turn down a run with Netflix. Netflix has over 62 million global subscribers and over 40 million in the U.S. And cord-cutters? Worried entertainment consumers are an easy target, those who are spending $90 to $125 a month and need financially to make a change. Analysts like to make comparisons to that one big pay TV player:  HBO. That similarity isn’t correct. Consumers are using Netflix as an TV service “anchor” as a partial replacement for slimming down on big cable TV channel packages.Netflix has the added benefit of allowing viewers to blow through a year-long 13-episode series in a weekend. But that added pressure to ramp up production in wildly accelerated ways, bolstering Netflix’s original TV and movie slate, has caused concern. So, Netflix will need to find a way to keep that very modest $8.99/month price tag around for consumers. And advertising might be an answer. Some history here: AMC — the network of “Walking Dead” and “Mad Men” — started off as a cable channel with no advertising. It just ran old movies. Then over time it gradually added “sponsorship”-like advertising opportunities, messaging that would appear before and after programming. Now we are left with a network with traditional TV advertising/commercials. PBS programming has consistently added sponsorship/advertising messaging — including video — before and after TV programming content. So could Netflix nudge into a marketplace with some kind of digital “pre-roll” advertising, stuff digital video consumers are now used to? Better still, could Netflix also offer up the option to viewers to skip the pre-roll ad after five seconds? More than other new digital platforms, Netflix has the added burden of dealing with a massive misstep of just few years ago, when it wanted to raise prices by separating its now DVD by mail business from its new and fast growing streaming video service. Netflix will continue to walk the line with customers. But if it will never consider adding some revenue-producing advertising, how will its business model evolve?