Why advertising won the streaming wars

Branded is a new weekly column devoted to the intersection of marketing, business, design, and culture.

“The end of advertising is coming,” a Forrester researcher declared about five years ago. 

Citing the consultancy’s 2017 report on the subject, the researcher explained that, increasingly, “consumers have options for getting what they want without interruptions.” This was not an uncommon view at the time. A book published that same year, bluntly titled The End of Advertising, made a similar argument: “The ad apocalypse is upon us,” the promotional copy summarized. “Today millions are downloading ad-blocking software, and still more are paying subscription premiums to avoid ads. This $600 billion industry is now careening toward outright extinction after having taken for granted a captive audience for too long, leading to lazy, overabundant, and frankly annoying ads.” 

If you were looking for a single company that embodied this line of thought, you could do worse than point to Netflix. A leader of the “bingeable, no-advertising revolution,” as one observer put it recently, the streaming giant became a monster success precisely because of its emphasis on a quality—and interruption-free—viewing experience. Part of that, for years, entailed a very clear perspective on advertising. 

To quote CEO Reed Hastings: “No advertising coming onto Netflix. Period.” 

[Illustration: Fast Company]

Recently, of course, Netflix admitted that, well, advertising is coming to Netflix. Details are a bit hazy, but perhaps as soon as this year the company will introduce an ad-supported tier as a way to boost subscriber growth, particularly abroad. Partly, this is a function of Netflix’s own distinct and evolving needs as a business (the company lost subscribers for the first time in a decade), and partly about the reality of drastically increased competition in the streaming-entertainment category, much of it ad-supported. 

But it’s also a function of something bigger than any single company or category: the surprising triumph of advertising in the digital era. This counters, perhaps once and for all, an end-of-advertising narrative that has been continuously offered, and continuously disrupted, for decades now. 

The big picture idea goes something like this: In the old days, consumers passively took in the commercial persuasion that technology forced on them, in a world of highly limited and strictly top-down media choices. The ad business was unstoppable; Mad Men was basically a documentary! 

Then (the argument continues) along came a series of tech and media changes—cable, digital video recorders, the Web, etc.—that each handed over more control to an increasingly active and demanding consumer. This was accompanied (or perhaps caused, depending on who is telling the story) by a fundamental shift in consumer behavior: a supposedly all-new skepticism about and scorn of advertising. RIP, Don Drapers! 

It is of course true that ad-avoiding businesses certainly emerged, from HBO to a welter of premium subscription services. And many ad-driven businesses like network TV and newspapers suffered, or even died. 

But meanwhile, some of the most mind-boggling business success stories of the digital era turned out to be purely ad-driven. Despite initial resistance from their respective founders, both Google and Facebook became advertising juggernauts. And mobile-era media remains thoroughly soaked in commercial messages, from the murky world of social media “influencers” to old-school traditional ads interrupting video clips and articles to sponsored messages breaking up search results and content feeds. (Hard data is tricky to pin down, but by some estimates a typical consumer is exposed to as many as 10,000 commercial messages a day.)

That’s why Netflix is hardly the only subscription-focused business to capitulate to advertising. Spotify, to pick one high-profile example, is spending millions to build a podcasting presence partly to tap into that genre’s ad potential. The videogame world—and thus, whatever “the metaverse” turns out to be—is increasingly ad-targeted, too. Even Amazon earns substantial revenue from advertising, through what once would have seemed like a completely unthinkable tactic: spiking its product listings with sponsored results.

In short, we are not likely to experience “the end of advertising” anytime soon. To the contrary, advertising will persist precisely because—however “lazy, overabundant, and frankly annoying” it may seem—it is the bedrock of a proven business model. Advertising makes all manner of entertainment and information and other services much cheaper, or even free, to many more consumers. And consumers like that.

Netflix’s current attitude about surrendering to advertising seems a little cavalier. The company hasn’t been collecting the kind of user data that advertisers now covet, but Hastings shrugs that off as an “outsourceable” issue: “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 recently. Reality might be a little more complicated than that. And as Fast Company‘s Jeff Beer points out, advertisers and brands might want to see a more serious and creative attitude before they buy into whatever Netflix has in mind. 

That said, Netflix is making the only move it can as a response to real-world consumer behavior. Hastings described the new tier as catering to the “ad-tolerant.” This is an amusing and interesting framing, because it simultaneously describes nobody and everybody. Pretty much, none of us chooses to take in ads. But by now we all know that absolutely none of us can avoid them. Period.

Rob Walker writes about design, business, and other subjects; his newsletter is The Art of Noticing


https://www.fastcompany.com/90751307/why-advertising-won-netflix-streaming-wars

Next Post

Elizabeth Warren’s anti-business platform would accelerate the next recession

According to a recent report from Deutsche Bank, a major recession is on the way. Goldman Sachs believes there’s a one-in-three chance of a recession within the next two years. Former Treasury Secretary Larry Summers, who predicted today’s 40-year-high inflation rates, now says that recession is  the “most likely outcome […]