Wednesday, June 3, 2015, 11:14 AM ET|Posted by Will Richmond
Netflix has been back under the microscope these past few days as reports (here and here) surfaced that some users were seeing pre-roll and post-roll ads promoting original programs. That immediately led to speculation that Netflix was preparing a full-on ad play that would significantly alter the viewer experience.
This in turn prompted Netflix's CEO Reed Hastings to post on Facebook, "No advertising coming onto Netflix. Period. Just adding relevant cool trailers for other Netflix content you are likely to love."
That Netflix is experimenting with how to leverage the massive audience it has built should be no surprise to anyone. Netflix is in the media business and in the media business, when you have a lot of attention, it is incredibly tempting to capitalize on it. All the more so when you have extremely good data and insights that would help target highly relevant ads. If Netflix were to insert ads at say, the same load as Hulu currently does, it would instantly add hundreds of millions of dollars of high-margin revenue.
But Netflix has built that large audience largely by providing an ad-free experience, and has therefore set the expectation that this is what users are signing up for. In a world awash with commercial interruptions, Netflix is an oasis of pure content enjoyment. Even the smallest deviation from this will naturally bring about howls of protest.
So while Hastings's statement about just inserting "cool trailers" has the feel-good vibe of a company that puts its customers first, even these will be seen as an unwelcome intrusion by some Netflix users. Netflix executives have said many times that HBO is their model, and HBO runs plenty of trailers for its shows on its linear network (however, note, I've never seen one in an on-demand experience on HBO, HBO Go or HBO Now, which is more analogous to Netflix).
Coincidentally, about a month ago the topic of Netflix inserting ads came up in a conversation I was having with a few industry friends. We made a friendly wager, with me taking the side that Netflix would not insert any paid ads ever. I made the point that Netflix's brand identity, value proposition and differentiation are so heavily defined by an ad-free experience that Netflix would be foolish to tinker with its model.
My counterpart made the valid point that there's nothing "religious" about not having ads. Rather, Netflix should retain the flexibility to offer an ad-supported option, possibly in exchange for a lower monthly rate (the age-old media tradeoff). This could be appealing for a certain segment of users.
Given its current experiment, there's no doubt Netflix executives are debating these same issues internally, researching users' reactions and trying to figure out how to play this. While I fully acknowledge the huge opportunity Netflix has with promotions and advertising, and it makes complete sense that Netflix is exploring its options.
However, the last time Netflix tinkered with its model, it led to the Qwikster debacle. That was a low point for Netflix, and somewhat miraculously, the company has completely recovered. Let's hope Netflix learned from that experience and won't be making any radical moves on the advertising front.