Netflix ads: would they turn off subscribers?

Netflix

Netflix’s popularity shows no sign of waning, but to maintain its momentum and original content budget, some analysts have speculated that it will eventually introduce advertising. Subscribers have shown little appetite for Netflix ads so far, so would introducing them compel viewers to reach for the cancel button?

This year Netflix topped the list of brands to beat in the Brand Finance study after its market value shot up by 105%, rising to $21.2bn. This growth was reflected in the swelling of Netflix subscriber numbers, with its global paid base predicted to surpass a staggering 150m. Moreover, Netflix recently topped a survey conducted by YouGov that measures the positivity around brands, beating out 2000 other individual businesses.

With stats like this, it’s easy to understand chief executive Reed Hastings’ relaxed feelings towards the impending onslaught of rival OTT services. In response to questions on the topic, Hastings said Netflix had anticipated the decline of second window content. This explains the business’ move into making major investments in creating its own original content.

Nonetheless, the rise of competitor streaming services should not be dismissed completely by the platform. In the last few months alone, Disney and Apple have announced the imminent launch of their own streaming services, which will comprise both established and new content. Already Disney has removed all its original movies from Netflix, as well as those it owns the rights to, including Marvel and Star Wars. In a further bid to lure Netflix subscribers over to its own offering, Disney is rumored to be prioritizing the creation of a spin-off Marvel TV series, capitalizing on the popularity of the franchise right now.

Apple and Disney are not the lone threats to Netflix’s ascendency in the world of streaming; the likes of Amazon Prime and Sky’s Now TV are also expanding their offerings. Additionally, traditional broadcasters are getting in on the action, with the BBC and ITV clubbing their British TV series together to form BritBox, a one-stop shop for all British box sets. BritBox already exists in the US and has performed successfully, so the hope is for a similar reception in the UK.

Due to perceived competition from these burgeoning services, Netflix has had to make a substantial financial investment into the creation of its original content. This is expensive; encompassing not just the cost of production, but the money to be spent on attracting the best talent for the job. Thus, the argument has been made that introducing integrated digital ads is a good means of off-setting Netflix’s ever-increasing content creation costs.

There have been calls for years for Netflix to integrate digital advertising into its platform, most prominently from advertising titan Sir Martin Sorrell, then of WPP in 2015. Sorrell claimed that in order for Netflix to turn a profit, it would inevitably have to build digital ads into its marketing strategy. And considering the jostling for space in the now-bustling OTT market, it is becoming more and more likely that Netflix could heed Sorrell’s advice.

Netflix has never formally introduced ads to its platform, yet in 2018 it did trial the idea. Carrying out some A/B testing, Netflix selected random accounts on which to pilot skippable ads. Viewers were shown targeted ads promoting Netflix’s other shows between episodes and could skip them if they wanted, but the trial was not well-received. There were complaints from users that they were unable to skip, a claim which was dismissed by teams at Netflix as simply an error. The seamless binge-watching culture that Netflix has built its reputation on jars with disruption of any kind, including digital ads. While the team at Netflix had hoped to promote original content to specified groups, and thereby increase engagement and customer satisfaction within the platform, it was a misfire. Fast forward to earlier this year, and the sentiment seems to have lingered. A recent survey found that a huge 57% of a Netflix control group said they would immediately cancel their subscriptions if ads were integrated into the platform. So far, all signs say no.

Netflix has already been criticized by users over the platform’s use of targeting. Last year the service was accused of serving people of color thumbnails which appeared to depict non-white cast members in major roles when actually they were in minor parts. This is illustrated in the marketing for romcom ‘Love Actually’, for which some viewers were shown a still of Chiwetel Ejiofor and Keira Knightley, suggesting that the film centers on their relationship. But this is a minor storyline in the movie and all other characters are white. The messaging left some subscribers feeling duped.

But Netflix has also been praised for running a number of genuinely creative ad campaigns of its own which have helped build buzz around the brand. To promote the Netflix original TV series, ‘Altered Carbon’ in 2018, creatives incubated a breathing adult mannequin in a bus stop in Santa Monica. This shocking stunt garnered much press and public attention and succeeded in piquing interest in the show. Similarly, to raise the profile of its series The Umbrella Academy, Netflix revived the NME for a one-off edition featuring the comic-book series on the cover. The year previously the music magazine had announced its closure in print to focus online instead. The series was created by My Chemical Romance’s former frontman Gerard Way, creating a link between the TV series and the music magazine that Netflix capitalized on.

While the question of advertising on Netflix refers to the brand introducing integrated ads that would impact the viewer’s experience, there are lessons to be learned from the brand’s handling of these creative ad campaigns itself. If the platform can harness such creativity again when building ads into Netflix’s online marketing strategy, it is more likely to be better received by the community.

There are plenty of examples of streaming services that have been able to scale while still offering integrated ads. One such example is the platform’s US-based competitor Hulu, which offers its community a two-tier subscription service. Within this structure, the more expensive subscription option offers a service free from ads, and the less expensive option featuring targeted ads. These ads are aimed at specific audiences based on insights gathered from consumer data and behavior.

Due to competition from these services, Netflix has had to begin investing more and more into the creation of its own content. However, this comes at a price to meet the production standards users have come to expect. Therefore, the argument has been made more than once that introducing ads could be a means to keep giving users the stuff they really do want to see.

Get The Drum Newsletter

Build your marketing knowledge by choosing from daily news bulletins or a weekly special.