Netflix is finally ready to sell ads

Netflix is planning to incorporate ads into a lower-tier subscription service, the streaming giant finally admitted in an earnings call on Tuesday, after it had a subscriber loss. “It’s pretty clear that it’s working for Hulu,” said Reed Hastings, co-CEO of Netflix, referring to the ad-supported video on demand. “Disney’s doing it. HBO did it. I don’t think we have a lot of doubt that it works.” Netflix’s advertising plans came to light after the company announced its first-quarter earnings, during which it lost 200,000 subscribers, its first such drop in more than a decade. Netflix took a stock hit of about 25% of its value in after-hours trading. The notoriously ad-averse streaming player conceded that it is time to start testing ads as one way to boost its fortunes. All of Netflix’s top execs, in the quarterly video interview around earnings, touched on why Netflix will explore serving ads. Hastings, Chief Content Officer Ted Sarandos and Chief Financial Officer Spence Neumann were part of the discussion. Read next: How Netflix can build its ad business “Those who have followed Netflix, know that I’ve been against the complexity of advertising, and a big fan of the simplicity of subscription,” Hasting said. “But as much as I’m a fan of that, I’m a bigger fan of consumer choice and allowing consumers, who would like to have a lower price and are advertising tolerant, get what they want, makes a lot of sense.” “Think of us as quite open to offering even lower prices with advertising,” Hastings said. “Ads is an exciting opportunity for us that we want to explore more,” Neumann added. Netflix’s flirtation with advertising could come as a bit of a shock to the advertising world, since the popular streamer has been so reluctant to open its audience to brands, regardless of how much marketers have coveted that viewership. Netflix is one of the founders of the subscription streaming video-on-demand model. Netflix made its mark with hit, ad-free shows like “House of Cards,” “Orange is the New Black,” and “Stranger Things.” Netflix is still making hit shows such as “Inventing Anna,” the story about the fake heiress Anna Delvey, and movies like Ryan Reynolds’ “The Adam Project.” Still, Netflix avoided advertising while the rest of the market has been plowing into ad-supported video on demand. Amazon, Disney, WarnerMedia, NBCUniversal, ViacomCBS, Roku, YouTube and more have been developing advertising platforms. At the same time, traditional TV has been eroding in prestige among viewers. "It is significant," said Brian Wieser, global president of business intelligence at GroupM, of Netflix's advertising turnabout. It's unclear if ads would be a hit on Neftlix, though, or how many subscribers would sign up for a cheaper ad-supported model. But ads in Netflix shows are likely to generate immediate interest among brands. "As the company rolls out an ad-supported tier, it's unlikely that more than a small share of Netflix subscribers would sign up," Wieser said, "which would limit the reach of any campaign. But it would still be very much in demand among brands." TV Upfronts and Newfronts 2022 calendar Netflix has always been coy about whether it would ever include ads, meanwhile many streaming TV analysts have speculated the company would have to succumb to the allure of ad revenue. Meanwhile, brands have sometimes gotten major exposure for prominently appearing in shows, like Eggo waffles in "Stranger Things." Hastings discussed why advertising could be a simple avenue for Netflix to explore. “We can be a straight publisher and have other people do all of the fancy ad matching, and integrate all the data about people,” Hastings said. “So we can stay out of that and really be focused on our members, creating you know that great experience, and then you know again getting monetized in a first class way by a range of companies that offer that service.” Netflix has seen its stock price drop more than 40% this year, according to Blomberg News. Netflix has 221.6 million subscribers but saw a drop of 200,000 in the first quarter, and it forecast 2 million more losses in the second quarter. On top of more competition from the likes of Disney+ and Amazon, Netflix also had trouble producing content during the COVID pandemic. Netflix also blamed password sharing for some of its inability to generate the most revenue from its audience. The company said it would try to encourage subscribers to stop sharing log-ins or to pay more for subscriptions.

Netflix is finally ready to sell ads

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