May 27, 2022

Netflix Will Add Advertising In “Next Year Or Two”; Co-CEO Reed Hastings Finally Concedes “Consumer Choice” Prompting Cheaper Plan


Netflix co-CEO Reed Hastings finally acknowledged what most people outside of the company have been saying for years: In order to keep growing, the company will need to incorporate ads.

The executive offered his view on the subject after Chief Product Officer Greg Peters addressed the spread in pricing among different territories and subscription plans with a stunning declaration. The execs were speaking on the company’s first-quarter earnings interview, which was posted to YouTube this evening, per quarterly custom.

“One way to increase the price spread is advertising on low-end plans and to have lower prices with advertising,” he said. “Those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription. But as much as I’m a fan of that, I’m a bigger fan of consumer choice. Allowing consumers who would like to have a lower price and are advertising-tolerant get what they want makes a lot of sense. So, that’s something we’re looking at now, we’re trying to figure out over the next year or two. Think of us as quite open to offering an even lower.”

No specific outline was offered for when or how advertising would be phased in. But the comments took on extra urgency given their timing. Earlier today, Netflix reported not only a subscriber miss, but its first decline in global subscribers since 2021. In part, it blamed competition, voicing concerns about the crowded marketplace in a more full-throated way than they had before. With 221.6 million subscribers, Netflix continues to lead the field, but its growth has moderated significantly and it has fewer levers to pull. A recent price increase in the U.S. and Canada has made Netflix the most expensive streaming player on the market, and that status could make it vulnerable to cheaper rivals.

Netflix for years has waved away the mere notion that it would consider rolling out an ad-supported tier. Most of its U.S. competitors, notably newcomers like HBO Max, Disney+ and Peacock have all been in various stages of adding sponsored messages to lower-priced plans. In the past, Netflix — and Hastings in particular — have cited a host of concerns, including privacy as well as the intricacies of integrating outside brand messages into the company’s well-honed interface.

Asked at an investor conference earlier this year about the notion of ads, CFO Spencer Neuman came the closest to Hastings’ comments, but still left it ambiguous. “Never say never,” he said.