Netflix, the video-streaming service, revealed this week that it added far fewer new subscribers over the second quarter than it had expected, prompting at least one industry expert to warn that the company may be forced to ditch its ad-free model.
In the three months ending in June, Netflix added 2.7 million new subscribers worldwide, taking its global total to 151.6 million, but this was well below its own forecast of five million and the 5.5 million it added during the same period last year.
Furthermore, Netflix lost 126,000 subscribers in the US, the first drop in its home market in nearly a decade and since the company started pouring billions of dollars into producing its own original content.
On a more positive note, Netflix reported revenue growth of $4.9bn in Q2 2019, up 26% year-on-year, and said it expected to add seven million global subscribers in the third quarter, including around 800,000 in the US.
The company was also crystal clear that it has no intention of boosting revenues in the future by allowing ads to be served on its platform.
In a letter to shareholders, Netflix said: “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.
“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.”
However, Dave Castell, general manager of inventory and partnerships (EMEA) at The Trade Desk, an online advertising marketplace, suggested that Netflix was coming close to “peak subscription” and that fierce competition would force it to think again about advertising.
“Netflix simply can’t – and won’t – keep saying no to advertising … Increased competition will inevitably lead to a licensing war – putting Netflix on track to lose some of its most popular programmes,” he said.
“Combine this with ever-rising production costs and commissioning budgets and it is just a matter of time until Netflix is forced to diversify its revenue model and open its arms to the billions of pounds that advertising will inevitably bring.”
Much is at stake because WARC reported earlier this year that, according to AudienceProject insights, more than half of subscribers across the US and six European markets say they would stop watching Netflix if it introduced ads.
And 45% would still leave the service, even if Netflix lowered its subscription fee to compensate.
In the three months ending in June, Netflix added 2.7 million new subscribers worldwide, taking its global total to 151.6 million, but this was well below its own forecast of five million and the 5.5 million it added during the same period last year.
Furthermore, Netflix lost 126,000 subscribers in the US, the first drop in its home market in nearly a decade and since the company started pouring billions of dollars into producing its own original content.
On a more positive note, Netflix reported revenue growth of $4.9bn in Q2 2019, up 26% year-on-year, and said it expected to add seven million global subscribers in the third quarter, including around 800,000 in the US.
The company was also crystal clear that it has no intention of boosting revenues in the future by allowing ads to be served on its platform.
In a letter to shareholders, Netflix said: “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.
“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.”
However, Dave Castell, general manager of inventory and partnerships (EMEA) at The Trade Desk, an online advertising marketplace, suggested that Netflix was coming close to “peak subscription” and that fierce competition would force it to think again about advertising.
“Netflix simply can’t – and won’t – keep saying no to advertising … Increased competition will inevitably lead to a licensing war – putting Netflix on track to lose some of its most popular programmes,” he said.
“Combine this with ever-rising production costs and commissioning budgets and it is just a matter of time until Netflix is forced to diversify its revenue model and open its arms to the billions of pounds that advertising will inevitably bring.”
Much is at stake because WARC reported earlier this year that, according to AudienceProject insights, more than half of subscribers across the US and six European markets say they would stop watching Netflix if it introduced ads.
And 45% would still leave the service, even if Netflix lowered its subscription fee to compensate.
Sourced from Netflix; additional content by WARC staff
