Netflix changed the global entertainment industry a few years ago by launching a video streaming service that made programming from major television networks and movies irrelevant.
Now, the company is targeting the last bastion of the pay-TV market: the $153 billion in global ad revenue.
The company and some analysts see Netflix’s new, cheaper ad-supported service as a way to boost the company’s revenue as customers cut spending in the wake of the economic downturn. As TV channel ratings decline and become less attractive to advertisers, an important target has emerged for Netflix to invest in.
Netflix co-CEO Reed Hastings said that realization came to him after recently hearing former Disney chief executive Bob Iger say that traditional TV is heading towards a cliff.
“What I underestimated was just the impact on advertisers,” Hastings said during an interview about Netflix’s third-quarter performance and outlook. The company’s shares rose 14% after predicting it would win 4.5 million customers in the fourth quarter.
“They’re reaching fewer people, and the 18-49 demographic is falling even faster than the decline in pay TV. So that’s what’s really fueling the cycle, it’s the collapse of traditional TV as an advertising vehicle. .”
The company plans to launch an ad-displaying version of the service in the United States and 11 other countries in November. The product will cost $6.99 a month in the US, 30% less than the cheapest ad-free version of the service. The new version will have about five minutes of commercials per hour.
Netflix, which has operations in more than 190 countries, aims to provide “personalized” advertising, just as it makes individualized content recommendations to subscribers.
Chief Financial Officer Spencer Neumann said the new service could be a new source of revenue over time, but warned: “It will be very small.”
Some Wall Street analysts said the ad plan could entice some price-sensitive existing subscribers to switch to the less expensive option. This could work in the company’s favor at a time of economic volatility.
If Netflix succeeds, revenue from the advertising version of the service and the revenue generated by charging a fee to subscribers who share their accounts could offset any shortfall from a lower-price streaming tier, said Haris Anwar, an analyst at Investing. with.
PP Foresight analyst Paolo Pescatore said Netflix’s adoption of advertising could deal a serious blow to television networks and broadcasters that rely on ads as a major source of income.
“This could be the last nail in the coffin for these companies,” Pescatore said.
(Collaborated by Tiyashi Datta)
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