There has long been speculation over whether or not it would be beneficial for Netflix to run ads on the service.
With the streaming space growing increasingly crowded, an ad-supported model would serve as a way for Netflix to potentially undercut competitors like Disney+ and Apple TV+.
Nomura Instinet analyst Mark Kelley last year said Netflix stands to make an extra $1 billion per year if it were to introduce advertising.
But speaking on the company earnings call for 2019, Netflix CEO Reed Hastings laid out the logic behind Netflix’s refusal to sell ads.
“Google, Facebook and Amazon are tremendously powerful at online advertising because they’re integrating so much data from so many sources,” he said.
“There’s a business cost to that, but it makes the advertising more targeted and effective. So I think those three [companies] are going to get most of the online advertising business.
“To grow a 5 or 10 million dollar advertising business you have to rip that away from other advertisers – say Google, Facebook and Amazon – which is quite challenging.
“In the long-term, there’s not easy money there.”
Rather than pouring money into an advertising service, Netflix will continue to invest in content, something it believes “drives word-of-mouth, improves retention and grows paid memberships”.
“We have a much simpler business model, which is just focused on streaming and customer pleasure,” Hastings continued.
“So we think with our model we’ll actually get to a larger revenue, a larger profit, larger market cap because we don’t have the exposure to something that we’re strategically disadvantaged at, which is online advertising against those big three.”
Hastings’ defiance came as the company reported $US20 billion in revenue for 2019 and $US5.47 billion in revenue for the fourth quarter.
Paid subscribers also grew year on year by more than 167 million.
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