Netflix badly missing its second quarter subscriber projections Wednesday, but it has no plans to turn to advertising as a new revenue source, the company told shareholders.
“We, like HBO, are advertising free,” the company said in its letter to shareholders Wednesday. “That remains a deep part of our brand proposition; when you read speculation that we are moving into selling advertising, be confident that this is false. We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.”
The letter Wednesday indicated that the looming threat posed by new streaming services, like Disney+, won’t change Netflix’s no-ads policy.
The letter came on the same day TheWrapPro published a story citing industry experts who said Netflix should at least explore a cheaper, ad-supported subscriber tier.
Netlflix, the dominant streaming company in the world, has inched towards a saturation point in the U.S., with about 60 million active accounts.
Advertising has worked for some of Netflix’s competitors. Hulu, for example, earns more per customer from its $5.99 ad-supported subscription than it does from its $11.99 per month ad-free sub, according to two people familiar with the company’s streaming data. The reason is that advertisers are desperate to reach streaming viewers.
On Wednesday afternoon, Netflix reported it added 2.7 million new customers during the second quarter, coming in well short of Wall Street’s expectations. The company’s stock dropped more than 10% in early after-hours trading as a result. Netflix blamed recent price hikes in several key markets, including the U.S., for its underwhelming subscriber growth. Netflix lost 126,000 U.S. customers during the quarter.