Netflix Reverses Course on Ads

In July 2019 Variety published an article titled “Netflix Insists It Won’t Move Into Selling Advertising.”

The following year in January, AdExchanger expounded on the notion of no ads on Netflix in a piece with the confident headline “Reed Hastings Explains Why Netflix Won’t Ever Sell Ads.”

Now in the closing months of 2022, ads are coming to Netflix. In this article, we’ll explore the reasons behind the streaming giant’s u-turn, and examine what this could mean for the future of the streaming industry.

We have included the following sections:

Netflix Ends Its No Ads Policy
What Can Ad-Tier Customers Expect?
Netflix is Feeling The Competition Heat Up
What’s Next?

Netflix Ends Its No Ads Policy

While Netflix was originally founded in the late 1990s as a company that rented DVDs through the mail, the journey to becoming the leader in online streaming didn’t begin until 2007. In the 15 years since pivoting from physical to digital content, Netflix has completely revolutionized the way we consume shows and movies. One of the key reasons for its success has been its ad-free model, allowing customers to binge-watch all the content they please without interruption. However, that has all changed with the introduction of an ad-supported tier now live as of November 1st.

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What Can Ad-Tier Customers Expect?

The new ad-based subscription plan was first rolled out in Canada and Mexico starting on November 1st.

On the 3rd, it went live in the US, UK, France, Germany, Japan, and Korea as well as a few other countries. Ad-based customers can expect to pay $7.00 per month, which is less than half of the standard ad-free plan currently available in the US for over $15.00 per month.

However, in addition to 4 to 5 minutes of advertisements injected into every one-hour of content you consume, the ad-supported tier will be limited to a resolution of 720p and subscribers won’t be able to access certain movies and shows until Netflix renegotiates their licensing deals with those providers.

Netflix says they plan to be highly selective regarding ad placement, targeting, and frequency.

For example, most new shows and movies will only feature pre-roll ads before the content starts. Meanwhile, content that has been around for longer will be subject to both pre-roll ads at the beginning and mid-roll ads spread out throughout the content.

Critics have pointed out that Netflix will likely find it challenging to programmatically insert mid-roll ads into their streaming content.

Unlike shows and movies made for television, content made for the streaming era is created without ads in mind. In other words, this sort of content doesn’t typically feature storylines based around cliffhangers and tropes that naturally lead into commercial breaks as was common for TV content.

To address this issue and prevent “mood whiplash” from untimely interruptions, Netflix says they have humans working to manually select “natural breakpoints” for ad placement rather than computer algorithms.

Netflix is Feeling The Competition Heat Up

If you ever find yourself wondering why a company is or isn’t doing something, nine times out of ten, the answer is money. Back when CEO Reed Hastings was adamant about never tainting the streaming service with ads, Netflix was rolling around in piles and piles of cash as the service had virtually no competitors. However, now with Mickey Mouse and the gang bundling their content with Hulu and ESPN+ for a price comparable to Netflix’s standard tier, those piles of cash are running dry. Over the past year, Netflix’s stock price has plummeted faster than a drop tower ride at an amusement park. In November of 2021, the company was hitting new all-time highs on a daily basis, peaking around the $700 mark. By May 2022, the stock hit a 52-week low of $162. This rapid, harsh fall came as Netflix lost more subscribers than it gained for two consecutive quarters. In Q1 2022, they saw a loss of 200,000 customers. Then in Q2 2022, an additional 1 million left the platform. Looking to recharge growth, the company is hoping that a cheaper option will entice a new wave of adoption. Interestingly, Netflix plans to launch its ad-supported tier just one month before Disney+ releases its ad-based option.

What’s Next?

So far, Netflix has remained tight-lipped regarding what exactly their ad-supported interface looks like behind the scenes. The company has admitted that advertisers should expect a barebones experience with few options and features early on, however, more functionality will come with time.

We do know that Netflix has signed deals with DoubleVerify and Integral Ad Science for assistance in developing the underlying advertising infrastructure.

The head person in charge of Netflix’s nascent ads department, Jeremi Gorman, says so far the company has attracted hundreds of eager advertisers and has “nearly sold out” inventory.

It will be interesting to see over the coming months and years if the introducing ads was really what Netflix needed to keep its spot on the throne as the leader of online streaming.

At the time we are publishing this article, Netflix still reigns supreme with about over 220 million users. Amazon Prime Video is close behind in second place with a bit over 200 million, followed by Disney+ with over 150 million customers gained since it first launched in 2019.

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