Netflix Running Ads?

Netflix Running Ads? No, and Here’s New Data Showing Why That Would Be an Epic Fail

By TODD SPANGLER

CREDIT: PAUL SAKUMA/AP/REX/SHUTTERSTOCK

Netflix doesn’t sell advertising or run commercial interruptions in its streaming content. The company says it never will. As I wrote more than three years ago, if Netflix adopted advertising it would be a total disaster — and that’s as true as ever today.


But the internet loves a good freak-out. A number of Netflix members flew into a rage after the subscription-video giant began a limited test that inserted promos for its original shows and movies between episodes they were binging on. Some threatened to cancel their subscriptions. (The internet is the perfect medium for venting unbridled umbrage.)

The perception? That the no-we’ll-never-run-ads company was, in fact, dipping its toes into commercials.

Remember: This was only a small test, and the promos Netflix was serving up weren’t even commercials in the traditional understanding of what that means — they were brief (skippable!) teasers inserted between episodes.

Netflix’s lack of ads has been a key part of its sales proposition from Day One, as the hand-wringing over the interstitial-promos trial balloon showed. And its members’ aversion to ads was highlighted by a recent survey conducted by Hub Entertainment Research, which found Netflix would suffer serious defections of it really went after ad dollars.

About 23% of current Netflix subscribers said they’d definitely drop the service if it began including ads during shows, the Hub survey found. Another 37% said they were undecided about what they would do if Netflix started running commercials, while 27% said they would “probably” keep it. Just 14% said they would “definitely” retain their subscription with ads running in Netflix.

To put that into perspective, the same percentage of Netflix users (23%) said they’d bail on the service if the company raised pricing by $5 or more per month, per the Hub survey.

“When we ask subscribers what they consider to be the most attractive features of Netflix, the fact that it’s ad-free consistently ranks toward the top of the list,” noted Hub Entertainment Research principal Peter Fondulas, who co-authored the study.

OK, you might say, but isn’t there an opportunity for Netflix to offer a discounted price plan that includes commercials, a la Hulu or CBS All Access?

Hub’s survey actually tested that hypothesis — but found subscriber losses could still be significant if Netflix rolled out a lower-priced option with commercials. Asked if they would keep Netflix service if the monthly fee were $3 less, just 16% say they’d cancel their subscription while 34% said they were unsure. One-fourth said they would probably keep it, and another 25% said they’d definitely keep it. The survey results come from Hub’s “The Future of Monetization” study, based on an August 2018 poll of 1,612 U.S. broadband customers who watch at least one hour of TV per week.

True, Netflix could offer a separate, cheaper ad-supported tier (which the Hub survey didn’t explicitly ask about). But that would pollute its overall brand identity. Plus, Netflix would have to stand up an entire ad-tech stack and sales operation, a big investment considering the obvious downsides of such a move.

Netflix has steadfastly maintained that ads will never be part of its business. “We don’t offer pay-per-view or free ad-supported content,” the company says in its long-term view statement for investors. “Those are fine business models that other firms do well. We are about flat-fee unlimited viewing commercial-free.”

We don’t know what proportion of Netflix subs who were genuinely upset when they were shown, say, a teaser for the final season of “House of Cards” or controversial dark comedy “Insatiable” in the midst of a binge-watch marathon. It seems likely that Netflix didn’t expect such a strongly negative reaction to the interstitial-promo test, and may not have even anticipated that people would see them as “commercials.”

Regardless of the scope of the backlash, the anecdotal evidence of Netflix’s test reinforces just how valuable a zero-advertising service is to its millions of streaming fans.