Why Netflix doesn’t want you to go ad-free: advertising expert

Shares of Netflix (NFLX) are trading higher after the company’s third-quarter profit surge showed its ad-supported offerings are gaining momentum. MNTN CEO Mark Douglas joins Seana Smith and Madison Mills

“The move towards advertising-funded customers is doing something very interesting [for] Netflix. It essentially makes it a growth stock and a value stock at the same time. The reason I say this is because they are acquiring ad-supported customers significantly faster than they are monetizing them. This creates a large revenue gap that they can tap into in maybe two to three years,” says Douglas.

He explains that Netflix’s move to ad-supported subscriptions is similar to the password-sharing crackdown that spurred subscriber growth. “A few years ago, it was so easy to access a Netflix account through a friend or family member’s account. Then they just scaled back a little and there was an explosion in subscribers and revenue. This is essentially similar. You know, it’s basically about creating that revenue gap that they’re going to take advantage of.”

“Another way to think about it is that you could predict that in two years Netflix will do, say, a twofold price increase, except that the subscriber won’t pay for it. “It’s the advertiser,” he says, explaining that with the ad-supported tier, Netflix derives significant revenue from advertisers rather than directly from users.

Douglas notes: “A little secret in the media world is that the advertising media companies want you to like ads… They love it when you’re on the ad-supported tier, not the ad-free tier. It makes them a lot more money” because it is a type of “double dipping” where advertisers and users increase sales.

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This post was written by Naomi Buchanan.