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Ad exec says sooner or later, Netflix is going to have to embrace ads like YouTube

There are a few certainties in life we can all agree on. Death, taxes — and that a large swath of Netflix’s user base will always recoil in horror at the mere mention of advertising on the video streaming service.

Nevertheless, the CEO of online advertising marketplace The Trade Desk thinks that’s exactly what Netflix is going to have to embrace sooner or later if it’s ever going to have a real shot at going head-to-head with YouTube in terms of international growth. That exec, Jeff Green, gave his take on Netflix and ads during the latest episode of Recode Media with Peter Kafka, arguing that consumers are getting closer to the limit of how many subscriptions they’ll be willing and able to pay for. And, crucially, as that ceiling approaches, services would do well to remember that many consumers are perfectly fine with the trade-off of accepting ads in order to keep their service free.

According to Recode, Green believes Netflix is going to follow the Hulu ad-supported model eventually, offering an ad-supported tier alongside its ad-free subscription, in order to compete with YouTube.

“They’ve envied YouTube’s international reach for a very long time, where even less than two years ago, 80 percent of subscribers for Netflix were in the U.S.” Green told Recode. “Our median household income’s at $50,000-ish, roughly, a year … compare that to all the places where there’s growth in the world, which is also where advertisers are willing to pay ahead. I don’t think there’s any chance that they can catch up to YouTube, whose geographical distribution is exactly inverted, which is 80 percent comes from outside the U.S., unless they go ad-funded in the same way that YouTube is.”

Green, of course, is not a disinterested observer here. His company connects advertising agencies and brands with ad opportunities via programmatic advertising. Still, we’ve made this same point in earlier posts here on a number of occasions. That there is currently a glut of content services — be they video or news media outlets and all manner of enterprises in between — racing to put up paywalls or roll out subscription offerings of some kind. The budgets of ordinary consumers aren’t unlimited, which means this is of course a game with a finite number of winners.

“I honestly think this is the model for lots of publications, which is okay, if you wanna pay a premium to avoid the ads that’s fine,” Green continues in his comments to Recode. “But the default will be to see ads, and most people would rather see, especially fewer, highly relevant ads, which is only possible through programmatic.”

Netflix, you could argue, has been tiptoeing into these waters. Here’s an earlier post we did when Netflix first began experimenting with teasers for its own programming that are effectively tantamount to ads.

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Netflix is testing a $4, mobile-only plan to attract a wider audience

Speaking with Netflix CEO Reed Hastings last week, Bloomberg learned that the company was considering testing a lower-priced tier of its streaming service in Asian territories. It apparently didn’t take long for the company to reach its decision, as Malaysia’s The Star reported on Wednesday that Netflix has introduced a mobile-only plan in the Asian country, charging just RM17 for a subscription (which translates to around $4 USD).

The “Mobile” plan, which costs half as much as the Basic plan, only allows users to watch Netflix on one smartphone or tablet at a time, and only in standard definition. If you want to watch on a laptop or TV, you’ll have to upgrade to at least the Basic plan, and if you want HD video, you’ll need the Standard or Premium plan.

According to TechCrunch, Malaysia is one of several countries where Netflix is testing the mobile-only plan. A Netflix spokesperson told the site that there are similar trials “running in a few countries,” but wouldn’t offer up any specifics. There’s still no telling whether or not other parts of the world will be included in these trials, or if the trials will indeed become a permanent part of the service if they prove to be successful overseas.

As TechCrunch points out, far more than half of the people who subscribe to Netflix live outside of the United States, but the company has failed to adjust its prices to match other markets. To that point, Asian rivals like Hotstar and iflix have priced their subscriptions as low as $3 — far cheaper than Netflix’s cheapest plan.

Furthermore, the number of new customers Netflix could gain by offering a mobile-only plan would far outweigh the number of users that would downgrade to a plan restricting them to their mobile devices. It seems like a natural fit for the streaming service, but we’ll have to wait and see how the trials pan out.

Netflix is trialing an inexpensive mobile-only subscription to widen its appeal

Costing half as much as the regular Basic tier, Netflix’s new plan being tested in Malaysia and elsewhere limits your consumption of TV shows and movies to mobile devices like a smartphone or a tablet.

Netflix Testing Cheaper Mobile-Only Subscription Model in Select Countries

As Netflix tries to grow subscriber numbers outside of the United States, TechCrunch reports today that the streaming video company is testing out a subscription model where users are only able to watch on a phone or a tablet. With this stipulation, th…