Tech

Netflix will have no choice but to run ads, industry execs say

Key Points
  • Netflix has said it doesn't want to run ads, but industry experts say Monday that it might have to if it wants to grow.
  • Ad executives from YouTube and JPMorgan Chase imply during a panel at IAB's Digital Content NewFronts that Netflix would have no choice but to start displaying ads and that Netflix is recruiting people to help grow the business.
  • Several other streaming services such as Hulu offer both ad-free and ad-supported versions of their services.
Reed Hastings, Netflix
Joan Cros Garcia - Corbis | Getty Images

Netflix has said it doesn't intend to ever run traditional ads. But advertising industry experts aren't so sure that will be the case.

During a panel at IAB's Digital Content NewFronts on Monday, executives from YouTube, JPMorgan Chase, media agency UM and MediaLink were asked about Netflix staying ad-free.

"Well, that's not what their recruiters say," said Tara Walpert Levy, YouTube and Google's VP of Agency and Media Solutions. "They're going to need growth. Eventually, they're going to need more growth."

JP Morgan Chase CMO Kristin Lemkau said consumers would be open to ad-supported options if those options are transparent and consumers understand the value exchange.

"The consumer wants choice and they want something that creates value for them," Lemkau said. "To the extent that you've got this subscription version versus the non-subscription version, consumers will take that tradeoff."

She spoke about "the biggest thing to happen in TV last night," referring to the airing of the latest "Game of Thrones" episode.

"It wouldn't have worked with ads," she said. "That piece of content, that type of storytelling couldn't have happened with ads. The army of the dead are at the wall, and we're still fighting among the houses."

Other streaming services offer both ad-supported and ad-free options. Hulu, for example, sells its ad-supported service for $5.99 per month. It costs $11.99 per month without ads. CBS All Access has similar offerings.

Joshua Lowcock of media agency UM said though there's been a move toward getting rid of ads, it will go back the other way. Lowcock is global brand safety officer and U.S. chief digital and innovation officer at the agency, owned by Interpublic Group.

"We grew up in digital, believing we should inject ads everywhere at every moment we could," Lowcock said. "And that's why you've seen ad blockers and a move to ad-free environments. I think there will become a tipping point where ads come back. Netflix is ad-free now. I can't imagine a world where Netflix will be ad-free forever. If you look at their content costs ... that's where addressable advertising and new ad formats will come in."

Netflix did not respond to a request for comment on the panelists' remarks.

The entrance of new streaming players like Apple and Disney were a point of discussion in Netflix's shareholder letter recently. In it, the company claimed it didn't anticipate "these new entrants will materially affect our growth because the transition from linear to on-demand entertainment is so massive and because of the differing nature of our content offerings." Disney will pull its movies from Netflix this year to stream on its own new service. Netflix has a market cap of $162.6 billion, compared with Disney's $250.4 billion.

Netflix stock fell about 1% earlier this month after reporting its first-quarter earnings. The company posted quarterly revenue that beat estimates but included light guidance for the following quarter. The company ended 2018 with 139 million paid subscribers, up 26 percent for the year. Competitor Hulu ended 2018 with more than 25 million subscribers.

Disney vs Netflix: What you'd have now if you invested $1,000 10 years ago
VIDEO1:0801:08
Disney vs Netflix: What you'd have now if you invested $1,000 10 years ago