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Netflix Is Losing $2 Billion a Year by Not Showing Ads

By Ryan Scott — February 7th, 2017

There are a lot of options for streaming services these days, but for the most part, Netflix has become an essential monthly expense for those who watch movies and TV. Even if you subscribe to Hulu or HBO GO, odds are it is being used to supplement your Netflix subscription. One of the main appeals for Netflix subscribers is that the streaming service doesn't show any ads. It turns out, they are potentially turning away a lot of money by not running commercials.

A recent report from Extreamist claims that Netflix is losing as much as $2.29 billion annually by not running ads. They arrived at the number by looking at the average amount of time users spend watching Netflix per day, which is 90 minutes. They then determined that the average amount of ad time during a 30-minute block of programming is 7.75 minutes. Finally, they looked at the average cost of a 30-second ad slot, which was $112,000. Multiply that all out and you arrive at $2.29 billion. That is an awful lot of money, but the situation is a bit more complicated than that.

For one, many people that love Netflix feel so affectionately about it because they don't have to watch any ads. Netflix dwarfs Hulu in subscriber numbers and there are a lot of determining factors, but Hulu does run ads on their programming and that very well has something to do with it. There is no telling how many subscribers Netflix would lose if they decided to suddenly start running ads. Not only that, but those are average numbers and that $2.29 billion figure is the absolute maximum based on those averages. So, even if Netflix did start running some ads, it isn't overly likely they would hit that maximum figure. Though, with their massive subscriber base, you never know what ad time could be worth to some advertisers. Since Netflix doesn't really release actual numbers for how well their programming does, it is hard to know just how many eyeballs Stranger Things or House of Cards could bring a brand that wanted to run an ad on Netflix.

The report from Exstreamist also claimed that recent survey they ran found that 79 percent of Netflix subscribers would rather pay more per month than have to watch ads while streaming content. So, if Netflix really wanted to increase their revenue stream, they would probably be better off raising their prices by a tiny bit. That wouldn't likely go over very well either. Given that Netflix's annual revenue is currently approaching $9 billion, they aren't exactly hurting. However, they are pouring tons and tons of money into original programming, with their ultimate goal to have half of the content on Netflix be original, as opposed to licensed content. That is going to cost quite a pretty penny and that money is going to have to come from somewhere.

It is worth noting that Netflix has not stated any sort of intention to implement ads on their platform. This was just a running of the numbers to see how much money they could potentially make, should they ever decided to go that route. In all likelihood, the number of subscribers they would probably lose would make showing ads more costly than profitable. For now, Netflix is going to continue doing what they have been doing as they have been doing it. There were some rumors recently that Disney was looking at potentially buying Netflix, which would likely change things in the future. But, given how much premium content Disney has at their disposal, it would probably only change things for the better and it is doubtful they would come in and start running ads either, because if it ain't broke, don't fix it. And there is no evidence that suggests Netflix is broken by any means right now.

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