Netflix's long-standing belief that it didn't need to sell ads is over.
A quarter of a decade ago, Netflix CEO Reed Hastings declared that the company would never be in the advertising business. But that was then, and this is now. In an earnings call Tuesday after reporting disappointing subscriber growth for the second quarter, Hastings said that "an important part of our growth strategy is to broaden our advertising selection," and he revealed new partnerships planned to do so.
Wall Street now analyzing the implications of this shift towards Netflix and other companies affected. Shares of streaming companies that sell ads are bearish, while adtech stocks – companies that can help Netflix advertise – are taking off.
Wednesday, Netflix shares fell 35% to $223.50
In an interview with Ad Week, the IAB CEO Anthony Katsur predicted that Netflix would eventually respond to public demand for an ad-supported version of their streaming service. Some analysts are unsettled by the lack of detail on how Netflix will approach the ad market and the casual nature of the disclosure. Some are unconvinced that Netflix really wants to sell ads.
J.P. Morgan analyst Doug Anmuth, who conducted the Q&A on the call, said he was encouraged about Netflix’s new position in advertising, but notes that the shift wasn’t likely bound to happen until 2024.
MoffetNathanson analyst Michael Nathanson, who has a "neutral" rating on Netflix stock and experience in the entertainment business, doesn't think a lower-priced ad-supported service could be adopted widely enough to offset the negative impact on other media companies who had been using advertising as their hidden advantage in balancing the playfield with the streaming giant.
Hasting also indicated that the company will solely rely on third-party ad infrastructure companies for the heavy lifting for the shift, rather than building a big ad-sales team
Matthew Swanson, RBC capital analyst who covers adtech companies mentioned that Netflix’s need and benefit of advertising is “a major vindication for the long-term CTV advertising marketing.”