Fear not, Netflix subscribers as it is highly unlikely that ads will be a part of the streaming service. At least not any time in the near future. Co-founder Reed Hastings recently explained that the company's strategy is largely reliant on not running ads, and they believe they can build a better business without them.
Reed Hastings is currently promoting his new book, No Rules Rules: Netflix and the Culture of Reinvention, which he co-wrote with business professor Erin Meyer. During a recent interview, Hastings addressed the company's decision not to run ads up to this point. Hastings explains that it's not necessarily a rule, but a matter of judgment. Here's what Hastings had to say about it.
"It's definitely not a rule. It's a judgment call... It's a belief we can build a better business, a more valuable business [without advertising]. You know, advertising looks easy until you get in it. Then you realize you have to rip that revenue away from other places because the total ad market isn't growing, and in fact right now it's shrinking. It's hand-to-hand combat to get people to spend less on, you know, ABC and to spend more on Netflix."
In recent months the streaming landscape has become more crowded with the arrival of HBO Max and Peacock. There are differing strategies at play HBO Max largely runs without ads, save for the occasional pre-movie preview of upcoming content. Peacock, meanwhile, is relying heavily on ads, offering a free, ad-supported version. Yet, as Reed Hastings further explains, Netflix has climbed to the top of the hill without ads, so there is no reason to think that strategy is flawed in their minds.
"There's much more growth in the consumer market than there is in advertising, which is pretty flat. We went public 20 years ago at about a dollar a share, and now we're [more than] $500. So I would say our subscription-focused strategy's worked pretty well. But it's basically what we think is the best capitalism, as opposed to a philosophical thing."
It is purely a business decision at this point. But that does mean that, as Netflix invests more in original content, those costs could be passed on to the consumer down the road in subscription hikes. Though Reed Hastings didn't say that in the interview. Hastings, however, did address the possibility for different types of content, such as sports and more in the future.
"I doubt news, but sports, video gaming, user-generated content, if you think of the other big categories, someday it could make sense. But right now, Ted's [co-CEO and chief content officer Ted Sarandos] got every billion dollar earmarked for bigger movies, bigger series, animation of course... At least for the next couple of years, every content dollar is spoken for."
Indeed, Netflix is outspending every other studio in Hollywood right now on movies and TV shows. The company is currently nearing 200 million subscribers globally, which puts them well ahead of the competition. Even though it seems like ads could generate a lot of money with that number of eyeballs, don't expect to see anything change on that front until the business model stops working. This news comes to us via Variety.