Netflix and Advertising

 

Over the last few weeks, the media world has been buzzing about Netflix discussing their plans to accept advertising on their service. For years, management has said that they would NEVER have advertising on their programming. Well, I suppose that even the brilliant Reed Hastings has learned never to say never. Other services such as Warner Brothers/Discovery and Paramount may be changing their models as well as debt service will hit them hard in 18-24 months.

 

The Netflix announcement was greeted positively by some in the media/advertising world and even a few Wall Street analysts. The logic flow is that Netflix has perhaps up to 800 million possible viewers as many subscribing households have 4-5 users. That is quite a platform for advertisers and by careful matching of advertising with content there could be a nice fit. A very well-known media executive who pledged me to secrecy weighed in as follows (expletives deleted):

 

“Don, we are really excited about advertising on Netflix and other streaming services. Remember how 30 years ago, we talked about narrow-casting on minor cable networks. Well, this is narrow-casting on steroids. Think of the products that we can sell to young adults who love horror films or sci-fi. That may be garbage to you and me but many enjoy it. Or, how about the arcane British and Australian mysteries that you are always recommending to me? The audience has to be aged 60+, well-educated and affluent and we can target them beautifully”.

 

I confess to being a bit skeptical of my friend’s enthusiasm. We have gotten spoiled by the streamers. After years of viewing a huge portion of our video time commercial free, do people want to go back to an advertiser supported model even if they save several dollars/month? Think about it for a moment. When you go to You Tube, do you dutifully watch the 15 second spots before a video? Advertising avoidance continues to march and why should we be so accepting of it on a platform that up to now has been commercial free?

 

 

Churn

 

Young adults were way ahead of the curve on this. They think nothing of subscribing to a service for a few months. Then, they proceed to binge watch a few series that are very popular and then cancel. A year or so later, they bounce back. After a dozen years plus, I just cancelled Netflix as I found most of my viewing was on Apple TV Plus, Amazon Prime Video and British based Acorn. Will I come back to Netflix? Absolutely, at some point for sure. Yet, I am certain that I will not linger for years this time around. So, if an old geezer such as I and his ever-youthful wife will cut the services back and forth in a manner similar to millennials, that has to hurt some streaming services. Amazon Prime Video will largely be immune to churn as it comes with an Amazon Prime subscription which most consumers would not wish to lose.

 

Consolidation

 

Since 1900, there have been about 3,000 auto manufacturers begun in the U.S. By the end of the 1920’s, The Big Three (General Motors, Ford and Chrysler) had a combined market share of over 90%. The same thing will happen in video streaming with some players going under but many getting swallowed up by the solvent giants. Five to seven years from now, I posit that we will be down to 4-5 meaningful players tops.

 

Conclusion

 

The next few years will be make or break for some players in the streaming space. Some must go the advertising route as they cannot make it on subscriptions alone and continue to produce world class programming. As always, stay tuned!

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.