SYDNEY: Australian SVOD businesses have rejected the idea of introducing ads to their service and intend to stick with a subscription model, although observers have questioned whether the local market can sustain a number of services on this basis.

The issue has come to the fore after Netflix CEO Reed Hastings had to react to speculation the streaming service was about to introduce ads when Xbox users noticed pre-roll inventory.

"No advertising coming onto Netflix. Period. Just adding relevant cool trailers for other Netflix content you are likely to love," he said in a Facebook post.

And Sean James, interim CEO at Presto, has also said that advertising is "not in our roadmap".

"We've done our modelling based on what the market potential is, what share we can take in that market, and we've set the business up on that basis," he told Ad News.

But Daniel Rowlands, local director of supply at video advertising platform SpotXchange, wondered if they weren't being too restrictive.

"Subscription is a flat revenue model with a finite number of potential customers," he noted. "For Stan, Presto and the other new players in the market, limiting revenue streams to a subscription model leaves money on the table.

"Adding ad-funded revenue streams into the mix, like Foxtel does, gives these businesses a more elastic and scalable business model," he continued.

Media buyers pointed out that individual SVOD services had yet to rival TV networks in terms of viewer numbers, but mused on the possibilities were a consolidated player to emerge and start serving ads. TV networks "would be up a creek", some felt.

"I think the whole [Netflix] pre-roll thing is about retention of customers and getting people to come back," said Paul Brooks, managing director at media investment agency Amplifi.

"I think when they're already watching Netflix, that's when they'd be really receptive to advertising about other Netflix content."

Screenrant had a different take, suggesting that Netflix could follow the example of the WWE Network, which shows professional wrestling intercut with old ads promoting its own product.

Binge watchers on Netflix, it said, could choose to turn on old commercials, some of which would be for current brands, as a way of breaking up hours of continuous viewing of a series and maybe lowering the cost of their subscriptions.

Data sourced from Ad News, Screenrant; additional content by Warc staff