Netflix founder, co-CEO and chairman Reed Hastings revealed why advertising isn't a part of the streaming service's business model. The reason comes down to more revenue growth being available from subscriptions.
About Netflix's no-advertising position, Hastings told Variety, "It's definitely not a rule. It's a judgment call… It's a belief we can build a better business, a more valuable business [without advertising]."
He added that Netflix would rather not struggle to claw advertising dollars from competitors. "You know, advertising looks easy until you get in it," Hastings said. "Then you realize you have to rip that revenue away from other places because the total ad market isn't growing, and in fact right now it's shrinking. It's hand-to-hand combat to get people to spend less on, you know, ABC and to spend more on Netflix."
Hastings continued, "There's much more growth in the consumer market than there is in advertising, which is pretty flat. We went public 20 years ago at about a dollar a share, and now we're [more than] $500. So I would say our subscription-focused strategy's worked pretty well. But it's basically what we think is the best capitalism, as opposed to a philosophical thing."
Hastings co-founded Netflix in 1997 with Marc Randolph.