Netflix says it won’t sell advertising

By Mariam Cheik-Hussein | 19 July 2019
Netflix's original series The Crown

Netflix has ruled out selling advertising on its platform after rumours that the streaming giant was eyeing the extra revenue.

In the company’s Q2 earnings results it directly addressed the topic by saying remaining ad-free is in its best interest.

“We, like HBO, are advertising free. That remains a deep part of our brand proposition; when you read speculation that we are moving into selling advertising, be confident that this is false,” according to a filing from the streaming giant to the US SEC.

“We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.”

The statement came with news of strong revenue growth for Netflix, up by 26% year-on-year. This is despite losing subscribers for the first time in six years in the US, however global subscription numbers were up.

While Netflix may never sell ads on its platform, its in-house shows reap in millions in brand sponsorships and product placement.

A study by Concave Brand Tracking found that its original flagship series Stranger Things had brand placement within season three of 45 products to the value of US$15 million. It estimated that Coca-Cola alone received US$1.5 million in advertising value across the eight episodes.

Has Netflix peaked?
Despite the revenue of US$4.923 billion in the second quarter, the halt in Netflix’s growth streak placed pressure on its stock, declining by 10%.

Instead of its forecasted five million paid subscribers, it added 2.7 paid users in the second quarter, while losing 130,000 subscribers in the US.

While it acknowledged the impending competition of new players such as Apple and Disney over the next year, it says competition hasn’t yet hit the business. Instead it puts the stunted membership numbers down to its own price hikes.

“Our missed forecast was across all regions, but slightly more so in regions with price increases,” the filings stated.

“We don’t believe competition was a factor since there wasn’t a material change in the competitive landscape during Q2, and competitive intensity and our penetration is varied across regions (while our over-forecast was in every region). Rather, we think Q2’s content slate drove less growth in paid net adds than we anticipated.”

It expects a stronger Q3 with the release of Stranger Things 3, along with other popular shows such as The Crown and Orange is the New Black.

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