LONDON — What if Netflix started running ads? It is a topic that has previously been debated here on Beet.TV, with one exec betting: “They’re going to have to start to deploy some type of advertising model to recoup some of the revenue that they’re spending on this programming.”
A new thorough analysis has shed some hard light on the possible impact to the subscription VOD service.
Ampere Analysis‘ report, Commercial Gain: If Netflix Moved Into Advertising, finds:
“At current consumption and subscriber levels, a pre-roll model could make Netflix an additional $270m per quarter, assuming an $15 average CPM. This equates to an aggregate $1.6 billion in quarterly subscription revenue.
“By contrast, a full broadcast-style ad-load could make Netflix nearly $2 billion per quarter, assuming a CPM average of $8.
“Netflix would have to be very careful in managing such a process, however, as its customer base has indicated sensitivity to advertising. Low-level churn could wipe out financial gains from a pre-roll model, while heavier churn from a full ad-load would combine with a higher cost-base to result in minimal positive impact on the bottom line.”
Speaking with Beet.TV, Ampere‘s Richard Broughton says Netflix has an attractive demographic for advertisers. Adding a pre-roll model would grow Netflix’s business by 15%: “As little as 10% churn could wipe out those gains.”
But Broughton says, if Netflix introduced a full ad model, it could sustain a loss of up to 50% of its subscribers without losing revenue.
This video was produced at the Future Of TV Advertising Forum. Beet.TV’s coverage is sponsored by Xaxis. You can find more Beet videos from the conference on this page.