When Netflix first launched into streaming back in 2007, the overall goal was to give people an entertainment option that was better than what they were getting on broadcast television. Now, Netflix co-CEO and chief content officer Ted Sarandos says the goal remains the same as the company prepares to launch a new advertising-supported option.
“We’re a little bit away from talking about details about the launch,” Sarandos told Kara Swisher in an interview on stage at Cannes Lion Festival on Thursday. “But what I will say for sure, is what we do first won’t be representative of our goals. Want I want our product to be is better than TV. So when I think about how ads are currently served on streaming … I think there’s a lot more work to be done there.”
The move to integrate advertising comes as the Netflix faces a significant bump in what’s traditionally been a skyrocketing upward trajectory over the past decade. In its most recent earnings report in April, the company said it had lost about 200,000 subscribers, the first such drop since 2011. The stock dropped 37% that week and has continued to drop, down more than 70% over the past six months. Netflix is still ahead of the streaming pack with more than 220 million subscribers worldwide, but the competition for viewers attention and subscription dollars has only become more intense with like Prime Video, Paramount Plus, HBO Max, Disney Plus, Apple TV Plus, and more.
When presented with Netflix co-founder Reed Hastings’ oft-quoted, past assertions that Netflix was never interested in advertising, Sarandos told Swisher that ads will not be a part of the current offering, just integrated into a new tier for those people who want a lower price and are willing to watch ads.
“I think it was wise for us not to do advertising in the beginning because we were building a product that was going to be better than television, and better for movie watching, than the current models,” said Sarandos. “[Back then] advertising and the linear schedule made television a pretty soft target. And we wanted to grow the business very simply so we could grow it very fast, and advertising was complicated.”
Now is the right time, he said, because, with all that increased competition, Netflix has found it is missing out on a potentially big (paying) audience by not offering that ad-supported tier. The move to new ad-supported tier will allow Netflix to compete directly with other platforms that already feature that model like Hulu, HBO Max, Peacock and Disney Plus. According to a report in the Wall Street Journal, Google and NBCUniversal are likely frontrunners as partners to help Netlfix create its advertising tier.
While Sarandos was light on details about what that new tier will look like, he hinted that what has made the platform so good at content, will also help it in advertising—as it has in its already booming brand partnerships business.
“Audience matching is what we’ve been doing from the beginning, and I think we could do really great in that,” he said. “I think creative is something we’ve been doing for 10 years and have been very competitive there, so bringing those worlds together and making it a great experience for both the audience and the advertisers. We’ll start simple, and iterate fast.”