Why is Netflix even considering ads?

Crippling fears of losing subscribers and lurking competitors have Netflix in an identity crisis.

Netflix and ads are bloodthirsty enemies. The absence of ads have been Netflix’s cornerstone since its streaming inception in 2007. It’s a piece of marketable treasure that has Netflix up to 130 million subscribers worldwide in just 11 years of operating. So when reports came out that Netflix was piloting a program in which brief ads for its own content are shown before its shows and between episodes, the internet reacted in the only way it knows how to: by overreacting. A firestorm of Reddit complaints engulfed the story and prompted the deer-in-the-headlights streaming service to issue out a reassuring statement regarding the ads.

“We are testing whether surfacing recommendations between episodes helps members discover stories they will enjoy faster,” Netflix explained in a statement to Arc Technica. “It is important to note that a member is able to skip a video preview at anytime if they are not interested.”

However quick Netflix was able to follow up and attempt to alleviate user worries, the whole situation demonstrated the tenuous nature of Netflix’s identity and how consumers have come to perceive it. For the die-hard Netflix user, the words “ad” and “commercial” are vomit-inducing plagues that should live and die in the cable network world. Netflix tried to make the distinction that these were recommendations and not your traditional insurance or car ads, but consumers instinctively see this move as a gateway to becoming what Netflix swore to destroy.

The act of airing ads for your shows before other shows is a long-standing aspect of broadcast and cable TV. Everyone has accepted it, but it’s still a bit infuriating when you’re given obnoxious 30 second ads for Alaskan Bush People for every 10 minutes of Shark Week programming. While no consumer particularly likes this model on cable TV, it unapologetically makes sense for the media companies behind these channels. Your continued interest in their channel means more ad dollars, even if that comes at a cost of substituting a revenue producing traditional ad in favor of 30 seconds of poor marketing for their other bottom-of-the-barrel show. Even Super Bowl commercial breaks are tainted with ads for shows you’ll never watch and ultimately represent a huge risk for the company if they are willing to miss out on millions of dollars with a desperate hope that you’ll tune in to one of their crummy shows a week later.

This model has made its way over to premium subscription services like HBO Now and Showtime Anytime as well, where the limited number of shows and content make the services more susceptible to losing unsatisfied customers. Netflix however, is producing shows at an unprecedented pace, hoping to eclipse 1,000 original shows and movies by the end of 2018. A mammoth $13 billion is expected to be spent next year on content and hiring showrunner giants like Ryan Murphy and Shonda Rhimes certainly gives Netflix an advantage in fresh content. But while it would love users to watch all of these exciting offerings, it doesn’t gain a cent more if you watch 3 shows one month and 25 the next.

The wealth of original options is undoubtedly key to Netflix’s strategy of continued growth, especially in more lucrative markets abroad. A slowdown this growth should be Netflix’s biggest worry, but these new ad tests highlight an underlying fear that rarely surfaces in their quarterly reports: user retention. If Netflix can’t keep you entertained, then they can’t keep your subscription. Many people wouldn’t believe user retention should be a legitimate fear for Netflix, but its new design would say otherwise.

A quick look at its app layout will show you that Netflix already experiments with different ways to entice you to explore its offerings. It devises creative categories that range from ‘Inspiring Sports Documentaries’ to ‘Understated Movies’. It even ventures into ad territory by emblazoning full screen placards of its original shows if you leave the app idle. The layout dedicates substantial screen space to splashy thumbnails for its original shows that are much larger than its regular thumbnails. Scroll further down and you are given automated previews that are triggered if you spend a fraction of a second longer than usual inquiring what the movie or TV show is about. These mechanisms act as attention grabbing ads, but no one would dare to put them in the same venue as a TV ad. Above all, they aren’t intrusive, are easy to bypass, and do nothing to slow down your latest binge session.

Netflix is looking for new ways to grow its user base, but introducing these new ads is not about growing that base, this was about retaining its current user base. Netflix model fixates on keeping you binging, and prides itself on competing with your sleep. For the most part, Netflix has saturated the US market with its 57 million subscribers, but it may feel it will lose your loyalty to another streaming service. Hulu continues to grow at a rapid pace, HBO and Showtime make must see shows that help to increase its subscription base, and most of all, Disney’s planned streaming service seeks to offer a plethora of Pixar, Star Wars, and Marvel entertainment options that they hope is too good to pass up. Furthermore, all of those offerings currently on Netflix will disappear, taking a huge chunk out of Netflix’s most popular offerings. Say goodbye to Thor Ragnorok and Coco. It doesn’t help that Disney is in the process of acquiring 20th century Fox, which will only pile up the entertainment properties that will dissipate from Netflix and float on over to DisneyFlix or perhaps even (the now Disney-controlled) Hulu.

Without Disney and Fox movies and television, Netflix offerings might seem to many as pretty… meh. At least at first sight. The thumbnail for Dark Tourism doesn’t enthrall me, but a brief dive into what it offers led me to give it a shot. Netflix knows this, and hopes to utilize its ads to complete that persuasion process. Netflix doesn’t just want you to binge, it wants to convince you that there’s so much still out there on their platform that you’ll never be bored.

Solving this issue with previews between episodes of Parks and Recreation didn’t seem like a problem to Netflix, but perhaps in the consumers eyes, the highlight of Netflix is still the absence of ads, not that they offer exciting shows like Stranger Things and Queer Eye.

Maybe its possible Netflix is performing reverse psychology a la the ‘New Coke’ ploy and is plotting to intentionally worry users in a vain attempt to remind them of why the current platform is so great. A wild risk, and likely not the case, but certainly fun to conspire about.

Ultimately this type of reality check is exactly what Netflix needs to tune their focus away from changing the service and towards enhancing their offerings. It’s experiment with ads resulted in the exact backlash they needed to heed to their customer’s perceptions and continue its quest to make cable TV obsolete.

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