During The New York Times’ DealBook summit, Netflix founder Reed Hastings explained his hesitation surrounding putting ads on the platform.
Key Details
- Hastings explained that his initial resistance to including advertisers on the streaming platform came from too much focus on competing with companies like Facebook and Google.
- After slowing subscription growth and increased competition over the last several years, Netflix finally decided to include a cheaper subscription option that included advertisements.
- The new subscription option was launched in November—offering select Netflix movies and shows for $6.99.
- He had not realized that companies hoping to reach the 18-to-49-year-old audience had nowhere to go since that demographic was not watching linear TV—streaming was their best option.
Why it’s news
Hastings had been adamantly opposed to advertisements on Netflix for years, but as more streaming platforms entered the market, Netflix found itself struggling to keep subscribers. Ad revenue could bring important revenue to the company.
As of September 30, Netflix has lost 223 million global subscribers.
“I didn’t believe in the ad-supported tactic for us. I was wrong about that. Hulu proved you could do that at scale and offer customers lower prices. We did switch on that. I wish we had flipped a few years earlier on that, but we’ll catch up,” Hastings says.
Later, Hastings explained that much of his hesitation came from his background with Facebook where advertising worked differently. From his point of view, he explained, Facebook and Google were the companies to beat, and they were able to succeed without TV advertising.
Admitting that he made a mistake in his calculations, Hastings explained that advertisers were looking for a new way to run TV advertisements.
“What I failed to understand is that there is a lot of TV advertising that now couldn’t find the viewers because the 18- to 49-[year old] segment had moved on and were not watching linear TV,” he said.
As advertisers scrambled to find new spaces to reach consumers, Netflix fell to the wayside while other streaming services jumped in.
Netflix’s competitors already offer cheaper ad-supported subscription options. Some streaming services like Paramount’s Pluto and Fox’s Tubi are completely supported by advertisements and free to users.