Cache | Netflix’s love-hate relationship with ads

Netflix has finally lent its ears to the voices supporting ads on its platform. But, ads alone can’t win it subscribers at a time when savvy consumers are looking for quality content from streaming services

A decade ago, Netflix was not a big player in the streaming service business. In fact, streaming service industry was still in its infancy back then. Google-owned YouTube had the largest market share for viewers in the segment. The search giant’s streaming service experimented ads on its platform for the first time in 2007. 

The in-video ads were first flashed in a TV-style animated overlay that appeared 15 seconds after a video started to play. The advertisements were displayed on a flash-based overlay at the bottom portion of the clip; they were partly transparent and ran for roughly 10 seconds. 

For the first time, ads enabled people to take action on them the moment they appeared. Before Google made ads to appear in YouTube videos, television ads were limited to making consumers aware of a product or service. People could not click a link to know more about the product to make a purchase decision.

The streaming service also offered users an option to close ads placed on the content they viewed. At that point in time, YouTube claimed that only 10% of viewers closed the overlay when it played a commercial. It further noted that there was a five to ten times “click-to-play rate” compared to traditional forms of advertising. The interactive style of advertising was a turning point for an industry that shaped materialistic consumer culture globally.  

Three years after the first flash-based animated ad appeared on YouTube, and a year after seeing its biggest competitor, Blockbuster, go out of business, Netflix was still not convinced of building a business on advertising revenue. It wanted to build its empire through a subscription-based service. 

The Los Gatos, California-based company said, back in 2010, that any time an argument in support of ads on its platform came up, it was “shot down”. And the service did thrive in the last 10 years, and was successful in its endeavour in build an ad-free streaming experience. 

During the pandemic, the company reported record revenue and jump in subscription. But things changed in the last two quarters as its subscription growth declined. Macro-economic headwinds and competition from other streaming services are making the company rethink its revenue model.