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Advertisers are confident that Netflix is going to one day have ads — or, at the very least, they really, really want Netflix to have ads.
Jorma Kremser, global media manager at Bose, said he expects Netflix to one day introduce ads — or significantly raise its subscription prices — during an advertising panel hosted by RTL Group and moderated by Digiday. Kremser said he can see Netflix introducing a pre-roll ad product, but was skeptical that the streaming service would embrace interstitials for fear of hurting the user experience.
Other advertising and media industry execs offer a similar sentiment. On a different panel, Antoine DuBois, svp of marketing global strategy at French hotel chain Accor, said he expects Netflix to one day have some type of advertising offering; Carlo Andrea Patticini, a media, ad production and procurement exec at Italy-based Barilla, said Netflix will need to because the other option is raising — maybe even doubling — prices.
Ads on Netflix have been a frequent topic of media and ad industry conversations — and often used as “bold calls” by those convinced that Netflix will one day have to offer ads. The reasoning is quite clear: Netflix has taken on tens of billions of dollars in debt and continues to borrow more money as it funds a seemingly endless supply of original movies and TV shows; and as the streaming service looks to grow in more price-conscious international markets, Netflix could significantly raise its revenue and profits by embracing advertising.
“Just look at the balance sheet,” said Daniel Bischoff, marketing director at RTL AdConnect, the ad sales division of European broadcaster RTL Group. “They will either need advertising or will have to raise prices.”
There are plenty of reasons — from potential damage to the user experience to infrastructure costs — for why Netflix isn’t likely to introduce advertising anytime soon.
Netflix has been pretty firm in saying it has no plans to introduce an ad-supported version of its streaming service. The fear of a consumer blowback after years of saying it would never include ads is a strong deterrent, but ads could also significantly change the Netflix user experience.
“Finding the right consumer experience balance is going to be extremely hard,” said Jesse Redniss, evp of data strategy at WarnerMedia. “Consumers expect to ‘Netflix and chill’ with a constant stream of pure content — introducing advertising will disrupt that flow and execution will be paramount.”
What’s more, building up an ad infrastructure — across different, unique markets — would be cost and resource intensive, making it unlikely that Netflix can turn on an ad-supported experience anytime soon. For instance, scaling an ad ops organization from scratch takes time, and scaling an ad ops tech solution into an existing subscription stack would add even more time. A high percentage of video buffering — “the wheel of death” — is also tied to ad calls that are being made while the content is loading, Redniss said. And currently Netflix doesn’t have to deal with third-party tracking tags or ad calls in their system; rebuilding the video player to incorporate that architecture is a “monumental task,” the exec added.
“Currently, [Netflix’s] thousands of engineers are singularly focused on video delivery and consumer experience,” Redniss said. “Adding ad experience, ad decisioning, trafficking, creative versioning, reporting, third-party verification and more is a major disruptor.”
That doesn’t mean Netflix won’t accept advertising, but it could increasingly come in the form of non-traditional forms such as brand and product integrations.
Aaron Frank, svp of marketing, strategy and insights at Branded Entertainment Network, which has placed brand and product integrations inside Netflix shows such as “Queer Eye for the Straight Guy,” said Netflix is likely to look at embracing more integrations within programming, especially as the company produces more of its own original movies and TV shows versus exclusively licensing them from outside studios. (That said, most forms of non-traditional advertising on Netflix has come from outside studios who would sell integrations for shows sold or licensed to Netflix.) Netflix has already experimented on this front with a marketing partnership with Coca-Cola tied to the next season of its hit series “Stranger Things” — though Coke didn’t pay Netflix for the product integrations, according to a report from Bloomberg.
While Netflix continues to take on debt, the company is also more likely to venture into merchandising, licensing and even video games to create new revenue streams, Frank added. Last year, Netflix hired Disney exec Christie Fleischer to be in charge of its global consumer products team. Her responsibilities include overseeing retail and licensing partnerships, publishing, interactive games, merchandising and events.