Netflix may soon have to adapt its revenue strategy for a much more competitive world of streaming services, adding ads to its streaming content. Well a new report now states that if Netflix were to proceed with adding ads to its content, it would be a very costly choice for the company.
In fact, current projections indicate that Netflix adds could end up driving away a quarter of the current subscriber base.
CNBC has the breakdown of a new report from Hub Entertainment Research, which reportedly did an initial survey of 1,765 Netflix subscribers (ages 16 to 74), to see how they would react to the implementation of ads into the service. 23% of subscribers reportedly indicated that they would drop Netfix altogether if it started showing adds - that percentage equates to about 14 million of the current 60 million paid subscriber base.
It wasn't all bad news for Netflix, however, as there was a clear and decisive way to deter subscriber loss in an ad-based model, by simply lowering the monthly subscription price. Only 14% of subscribers would leave an ad-based Netflix, if the monthly price was dropped by $2; a $3 discount would only cause 12% of subscribers to head for the door.
Netflix subscribers started getting wary last summer, when the streaming service began running targeted content previews after episodes or movies were finished. That led to speculation that ads were on the way, but Netflix has always maintained the line that the platform was not headed that way. In fact, in 2015 CEO Reed Hastings addressed the mater publicly, saying: "Our content is our crown jewel. It's up to us to take [subscribers'] money and turn it into great content for their viewing benefit."
That dedication hasn't stopped industry analysts from predicting that Netflix is going to eventually implement ads - mainly due to the fact that ads would earn Netflix billions in revenue. As analyst Mark Kelley put it:
"An ad-supported tier could [also] provide a lift to free cash flow, reducing the need for Netflix to raise debt frequently, especially beyond 2021 into a potentially rising rate environment," Kelley wrote in a note to clients.
For right now, this is all just speculation and projection, but that grace period will not last too much longer. This fall will mark the launch of Disney's Disney+ streaming service, which is expected to quickly become Netflix's biggest competitor. Disney's 20th Century Fox acquisition will also give it a controlling stake in the Hulu streaming service, which is arguably Netflix's current big competitor. That's a major one-two punch to Netflix's market share on the horizon, and it still remains to be scene how the company will react, if Disney steals some major market share out of the gate.
Netflix is currently streaming ad-free. Enjoy it while you can.