Netflix shares dropped 35 percent on Wednesday, amid slowed growth, as the streaming giant said it lost 200,000 subscribers in the first quarter of the year. During the company’s most recent earnings call, co-CEO Reid Hastings signaled Netflix was exploring an ad-supported tier of the service.
The move could signal looming competition for Google. The Information reports at least one Netflix executive was concerned that a move into advertising would “pit the company against Facebook and Google.”
Google is in fierce pursuit of advertising dollars that major brands spend on broadcast and cable television. In 2020, the company relaunched its premium ad offering as YouTube Select, unifying all of Google’s advertising products for major advertisers.
The company added advanced brand suitability controls, amid concerns about the quality of the content found on the company’s video site. YouTube Select offers placements on the company’s most coveted channels: brand-safe, top content creators and YouTube TV.
While Netflix has long believed in an ad-free subscription model, it is likely there would be some interest in an ad-supported subscription tier. Insights from Hub Entertainment Research show 67% of consumers would choose ad-supported TV over an ad-free subscription. 57% of consumers said they could tolerate some ads while watching programming on a streaming service.
If Netflix integrates advertising, it could also open a world of new possibilities for the stagnant streamer. The company could start streaming sports. Last year, Hastings told Der Spiegel, “A few years ago, the rights to Formula 1 were sold. At that time we were not among the bidders, today we would think about it.” It could also start offering linear live TV channels, like Peacock, possibly using content from its vast library.
Marketers are buzzing at the prospects of advertising on Netflix. “Almost reflexively, marketers are excited by the prospects of an ad-supported Netflix,” Brian Wieser, Global president of business intelligence at GroupM, told Campaign. “Many might presume it will help them reach vast numbers of elusive consumers with impactful messages on zeitgeist-influencing programming in relatively short order.”
Head of Investment for Crossmedia, Christine Merrifield-Wehrle, told Insider, “Facebook and Google in particular should be concerned.”
But there could be one scenario that could help both Google and Netflix: a collaboration between the giants. During the earnings call, Hastings also indicated that the company would likely hire other companies to do the “heavy lifting” when it comes to the advertising technology, opting not to build a tech stack.
“We can be a straight publisher and have other people do all of the fancy ad matching and integrate all the data about people,” he said.
Google could know a thing or two about that.