We Now Know Why Netflix Won't Show Ads Or Commercials
When Netflix launched its streaming platform in 2007, it set a number of precedents for how streaming would work. And one of the most interesting parts of Netflix as a platform is not just what it does have, but one major thing it doesn't: ads.
While Hulu, CBS All Access, and Amazon Prime all offer subscription levels that work advertising into their service in exchange for lower rates, Netflix stridently never has. Advertisers, of course, still play a significant role in terrestrial network television as well as basic cable. Prior to streaming services and DVRs, most TV shows lived and died by Nielsen Ratings, which helped advertisers know approximately how many people were watching, when they tuned in, and which demographics were drawn to certain programming.
A lot has changed about television since 2008. Netflix brass, for their own part, rarely share data regarding their viewership because, without ads, they don't have to unless they want to. But have you ever wondered why, despite their competitors tactics, Netflix still avoids advertisements entirely to this day?
In a recent interview with Variety, Netflix co-founder Reed Hastings opened up about his new book No Rules Rules: Netflix and the Culture of Reinvention. Hastings talks a lot about "managing on the edge of chaos" and how the key to avoiding rigidity is simplicity.
Is Netflix's "no ads" rule sustainable?
Despite the title of No Rules Rules, Netflix does have at least one significant rule, of a sort: no ads. When Variety asked Hastings about the lack of commercial advertising on Netflix's streaming platform, he was quick to define that choice more as a "judgment call" than a "rule."
"Advertising looks easy until you get in it," Hastings explained. "Then you realize you have to rip that revenue away from other places because the total ad market isn't growing, and in fact right now it's shrinking."
Hastings further discussed the "hand-to-hand combat" Netflix would face if the streamer attempted to compete for advertiser dollars with the likes of ABC. "There's much more growth in the consumer market than there is in advertising, which is pretty flat," he said.
As if to put a period on the statement about fighting for advertising dollars, Hastings reasoned, "We went public 20 years ago at about a dollar a share, and now we're [more than] $500. So I would say our subscription-focused strategy's worked pretty well."
Netflix had 193 million streaming customers as of the end of June 2020, and it's hard to argue with those numbers. However, with Amazon Prime at 112 million members as of December 2019 (according to Consumer Intelligence Research Partners), the question will always be one of sustainability. Amazon was only at 100 million in 2018, suggesting enormous growth in just one year. And with Disney+ already punching at around 60 million users, there may be a statistical inevitability to advertising. If enough other platforms begin to incorporate commercials, will Netflix's "judgment call" to avoid them remain? Only time will tell.