Advertising on Netflix - Is it on its way?

No sooner had Netflix started test screening advertising on its service in mid-August than workarounds for blocking it appeared online.

Meanwhile, angry subscribers messaged the company on social media expressing indignation – the common point being that they pay monthly for the video streaming service and don’t want to be interrupted. It’s not what they expect from Netflix.

So it would seem that, if this was a test, those subscribers who were targeted – the company won’t say who or in which markets – gave it a massive fail. Or maybe not. Only the company itself mining its viewer data will properly know the reaction. One thing seems clear though, Netflix is considering its options.

The video streaming giant has 130 million subscribers across 190 countries – each paying between $8 and $14 monthly, or in Ireland, from €7.99. It does not publish subscriber numbers on a country-by-country basis but, in March, on foot of a 2017 survey conducted by communications regulator Comreg, it was estimated that about 500,000 Irish households use the service.

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The test advertising didn't feature paid commercials: instead, it consisted of a trailer for a Netflix original show, such as Better Call Saul, shown before an episode of a series, for example Friends. It's not a new idea. Cinemas show lengthy trailers for upcoming movies to encourage the audience to come back.

Skipping intros

And as Netflix is aware that its users tend to be impatient for the main act – skipping programme intros is one of the joys for binge-watchers – viewers can skip the trailer.

But after years of uncluttered viewing, it’s not now difficult to imagine a future where these 15-second “in-house” trailers is replaced with one or more paid-for product commercials.

In July, the company admitted that, after a long run of consistently high membership building, it had over-estimated subscriber projections for the previous quarter

Netflix is careful not to use the word advertising. A statement to The Irish Times about the test described the pre-show trailers as "surfacing recommendations" to help "members discover stories they will enjoy faster". The statement continued: "We will relentlessly explore and test new types of video in our UI [user interface] to create a better Netflix experience and help members find something great to watch even more quickly and easily."

All of which sounds lovely and helpful, especially for those of us so bamboozled by the choice on offer, usually between series and movies we have never heard of, that we give up. There is, though, the niggling feeling that ad-free Netflix days are drawing to a close.

“It was probably inevitable that the [ad-free] Netflix binge-fest had to come to an end,” says Eoghan Nolan, chief executive and creative director at Dublin agency Brand Artillery. “Without an unending supply of new subscribers, Netflix were going to have to increase the yield from the existing 130 million customers to pay for the shiny premium content they’ve been producing and buying.”

Heart of the move

And that gets to the heart of the move. In July, the company admitted that, after a long run of consistently high membership building, it had over-estimated subscriber projections for the previous quarter, and that it had added only 5.15 million subscribers in the period – about one million less than forecast.

On foot of the figures, analysts pointed to the intense competition in the sector and to the ramping up of investment in direct to consumer streaming (DTC) services by competitors including Amazon and Disney.

The consumer is firmly moving towards mobile, non-linear, on-demand viewing – exactly what Netflix has perfected – so inevitably, competition would build.

And this against a background of a massive estimated $8 billion spend on original content by Netflix in 2018.

Popularly acclaimed

Its original movies have so far failed to find critical plaudits but it has had global success with its top quality dramas, notably The Crown, the critically and popularly acclaimed first series of which was rumoured to have cost north of €100 million.

Netflix stands to destroy the trust that it has built with its customers by changing the rules of engagement

As well as drama and movies, it is upping its unscripted series content – traditionally the advertising-friendly bread and butter of cable and network TV stations. Last week, at the Edinburgh TV Festival, it launched five new unscripted series including Flinch, an "all action comedy game show … set on a remote farm in the hills of Ireland where brave and foolish contestants gather to test their nerve against three fiendish games".

Charlotte Barker, deputy managing director at Dynamo, a Dublin-based agency, says any move by the streaming platform to include advertising has implications for the brand.

“Netflix stands to destroy the trust that it has built with its customers by changing the rules of engagement, something that nobody is ever comfortable with, around a fundamental pillar of its brand.”

But she notes that music streamer Spotify is an example of a service that “provides customers with a choice of ‘get the service for free but suffer the ads’, or ‘pay monthly and go ad-free’. Give the control back to the viewer, and everybody’s happy”.

Subscriber tolerance

And Netflix has to be encouraged at how tolerant subscribers have shown themselves to be of advertising; its content streaming competitors Hulu and Amazon Prime show advertising, and pricey pay-TV providers including Sky and Virgin show advertising as well as series bookended by lengthy (and tediously repetitive) sponsorship stings.

Whether Netflix evolves into a two-tier service that offers subscribers a price break for signing up for a package that includes advertising, while charging those “premium” members who opt for ad-free viewing a higher rate, will be interesting to watch.

If that happens, says Nolan, “once again, paradoxically, advertising aimed at people with money can’t reach them because they use money to escape it”.