Netflix, Advertising… and the Mistake of Believing the Markets Think Like You Do

I write after donning a hair shirt in penitence for my crass misunderstanding of Netflix’s decision in late 2022 to offer cheaper subscriptions with advertising, the result of my mistaken belief that the markets think like I do, and that all decisions should be made based on the same criteria I use.

In my case, the mistake is even more flagrant, given that I am always telling my students at IE University: “never believe that the rest of the market thinks like you.” IE, despite what some mistakenly believe, is not a place for rich kids whose parents pay for their studies. In reality, it is a university that, although expensive for Spain, is very competitively positioned compared to the universities with which it competes internationally, and offers proven quality, while providing many generous scholarships. That said, IE students who judge the market based on their classmates — people who after working for a number of years have been able to make the decision to invest in studies whose cost will be quickly amortized, or who are talented enough to qualify for a scholarship — couldn’t be more wrong.

For example, it’s clear that the car market is not made up of would-be buyers who are financially intelligent, or simply bright enough to understand the concept of investment — the slow adoption of EVs and the number of people who still believe they’re “too expensive” is proof of that. The markets are made up of many people with very criteria to yours and mine, either because they are ill-informed, because they have no criteria at all and are driven by impulse, because they can’t be bothered, or because they feel they have no choice. Whatever; it doesn’t matter.

In the case of Netflix, the numbers speak for themselves: during the first quarter of 2024, 56% of the new subscribers the company was able to attract came in through its cheapest, ad-funded option. What seemed like an aberration to me, accepting the punishment of having the content you want to watch interrupted with ads you don’t want to watch in exchange for saving a few euros a month, is now the option that is offering the company its biggest growth in years.

Logically, Netflix’s “natural” market, people “like me and my friends” who want to access content without suffering ads, was already saturated, and therefore, offering a cheaper product with ads would find a new audience. Furthermore, the decision to offer a cheaper service to whoever wants it was infinitely better than what Amazon Prime did, which was to stick ads in all its content, then blackmail its subscribers by telling them that if they didn’t want ads, they had to pay more. The difference is obvious, and while I can still watch my Netflix content without ads, on Amazon I have come to hate the companies that interrupt my viewing. Netflix obviously employs better strategists and sociologists than Amazon.

Going further, on the other side of the equation, among those advertisers who hire those creatives that I sometimes find myself longing to kill with my bare hands while taunting them to make their ads more annoying, “because nobody remembers anything unless it’s annoying”, there will be many unhappy companies that can no longer reach their target audiences. We all know younger people do not watch free-to-air television, and no matter how much they feel like watching a movie, they won’t bother if they know that they are going to be interrupted by commercial breaks that, moreover, are entirely random. But while they don’t watch free-to-air TV, they do consume vast amounts of streamed series. Hence, Netflix’s decision, which allows them to reach that audience, is potentially very attractive.

Is Netflix somehow betraying its ideals of putting content above all else by creating a subscription service with ads? No doubt about it. It’s the end of a culture created by its founder, Reed Hastings, that set it apart from its competitors. But Hastings now does his own thing and sits on the board to keep himself amused while companies line up to offer analysts anything that suggests growth. Sad? No doubt about it. But it is what it is, and at my age, I should have learned to deal with it by now.

After all, these kinds of issues are relatively constant in today’s world. Did anybody really think that younger Chinese consumers would stop buying Apple iPhones in exchange for Huawei products as a matter of national pride, rejecting US blockades and embracing Chinese-produced technology? As it turns out, geopolitics is rarely on the mind of most people, and all it took was for Apple to lower the price of iPhones slightly to drive its sales up by 52%. Patriotism? My ass.

So here we are: more advertising in places we never expected to see it, and blackmailed by companies who demand we pay more or watch their ads (or simply walk away, which is increasingly the most appealing option in my case), or in the hands of those willing to sell anything, their principles, their culture or their identity, in order to keep growing, even if it means looking more and more like what they started out trying to set themselves apart from. It’s all very sad, but as the Spanish poet and singer-songwriter Joan Manuel Serrat used to sing, “the truth is never sad, there’s just no remedy for it.”

(En español, aquí)

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This post was previously published on MEDIUM.COM.

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