Netflix to start showing ads by 2018

TOKYOPOP Fam: When I started writing this blog, I emphasized that I would explore a range of topics, and in particular I won't spend much time on the core info of anime/manga since most of you by this point are more knowledgeable than I am. Instead, I try to give a bit of insight into what inspires me, what motivates me, and thoughts on life overall.



With that in mind, today is my first "business" (or "industry") blog here. Why? Because part of my life is tracking the overall entertainment industry and considering the direction of media, entertainment and pop culture - and how that affects our world. Japan, Asia, and anime/manga are all parts of that bigger whole.

So, to the headline: Netflix. In the TV and even film business, Netflix has been crowned the King. I attend various film festivals and television markets (just at MIPCOM in Cannes, France), and wherever I go people are talking about Netflix and the VOD platforms.

There are different flavors of VOD - from the IPTV services that work with a TV, to Over-the-Top (OTT)  services which you can enjoy on your laptop, tablet or smart phone. There's the T-VOD (transactional) services such as iTunes or your cable company's offerings; S-VOD (subscription) like Netflix, Hulu Plus, and Amazon Prime - and CrunchyRoll's premium service; and A-VOD (advertising) which includes regular Hulu, Crunchyroll's free service, and even YouTube.  (see more here)

Lately the momentum has shifted rapidly away from "linear" TV networks (including premium cable networks like HBO and Showtime) towards these VOD services. The numbers still favor the traditional networks, but the viewership habits are changing rapidly, so most industry people predict that this will continue until eventually everyone can watch whatever they want on any device, including their TV. Will linear networks still exist as they do today? Or will they all eventually evolve to only VOD shadows of their current selves?

HBO and CBS have both announced this week they will soon offer "cutting the cord" VOD services - where anyone can subscribe just to the VOD service without owning cable (like me - I don't have cable anymore). The question remains whether other networks will follow and when, but the trend is clear.



And in our niche anime market segment, the leader CrunchyRoll sold their company in the past year to a major media entity (Otter Media, an online video company co-owned by former Fox head Peter Chernin's company and AT&T), and Funimation has been putting significant resources into their own VOD efforts (which may lead to a deal as well). Even Korean drama VOD leader DramaFeversold to Softbank in the past week, which follows Viki's sale to Rakuten last year.

So, how does this all relate to Netflix and ads? Well, Netflix has notoriously invested hundreds of millions of dollars recently into original content deals, including popular dramas "House of Cards" and "Orange is the New Black" to family and adult animation, international shows (especially in Europe) and even exclusive feature films (the Crouching Tiger Hidden Dragon sequel being the first announcement, followed up by a 3-film deal with Adam Sandler).

As more and more media companies roll out their own VOD services, it becomes difficult to imagine a "Spotify" type service where every movie and TV show is available on one platform. So, what do we do as consumers? Do we sign up for a bunch, and hop around? Or will there be a future Google-like start-up or tech company that becomes sort of a "TV Guide" for the brand new world of VOD? Or do we revert to piracy?

Whatever the result, Netflix itself will need to add subscribers if they want to grow revenue. And when that becomes impossible, there's only one place they can turn: advertisements.

Now, they insist they won't. But I'm old enough to remember the beginning of cable TV, which insisted its value was "ad-free".

And as we all know, Wall Street and the might stock price commands the most attention of public companies.

So, when Netflix loses its subscriber growth, but still must fund expensive original productions to differentiate itself, that's when it will follow in the footsteps of cable in the 80's. The one company Netflix admires most, HBO, does not yet have commercials, although it does have product placement revenues. The revenue mix to all these companies will be up in the air as the digital disruption continues, and we all shift our habits away from the traditional couch-potato-flipping-on-the-TV model.

By 2018 will Netflix really have advertising? Product placement? "Sponsored by" shows? My bet is there will indeed be versions of advertising through Netflix. They may not look like today's commercials (and Netflix is an innovative company) but the power of Madison Avenue and corporate brand revenues is simply too attractive to ignore.

Of course, only time will tell! What do you think - let me know!

Yoroshiku! --Stu