Will Netflix’s Shaky Ad Business Be Reed Hastings’ Legacy, YouTube Won’t Be “TV” Until It Solves This

1. Will Netflix’s Shaky Ad Business Be Reed Hastings’ Legacy?

When Russia invaded Ukraine back in 2022, Netflix shut down its Russian operation in solidarity with Kyiv.

Which was a relatively uncontroversial move until a nervous Wall Street took the resulting drop in subscriber numbers to be a sign of large issues and sent Netflix’s stock price plummeting. 

Which was more a reflection of Wall Street’s irrational obsession with subscriber numbers than with any actual problems with Netflix’s business model, but Wall Street is rarely rational when it comes to media stocks.

That said, the company was so rocked by Wall Street’s sudden loss of faith, they forgot about their prior pinky-swear never to run ads and hastily rolled out an ad-supported tier that’s never really done what they had hoped for.

And that may be former CEO Reed Hastings’ most lasting legacy as he prepares to leave the company for good.

Why It Matters

The ad-supported tier isn’t a failure.

Or at least not a failure per se.

It’s just that the math around it has always been fuzzy.

Every quarter Netflix makes pronouncements around the number of new subscribers who take the ad-supported tier and how their overall numbers are growing.

Without ever telling us where those new ad-supported subscribers are located.

For the industry, or at least the more skeptical part of it, that is the ultimate question though.

Because the assumption is that if sizable numbers of those ad-supported subscribers were in the US, UK and other western nations, Netflix would be all over those stats.

Whereas the fact that they are not seems to indicate that most of the growth is coming from lower-income regions like Brazil and Mexico.

There are, it seems, unofficial sources that claim the US ad-supported numbers are sizable, but again, the assumption is that if they were valid, Netflix would be all over them.

The problem—and regular readers have heard me articulate this before, is primarily two-fold. 

First and foremost, Netflix spent most of a decade selling people on the idea that watching TV without ads was the bees knees and that only Losers watched ads.

Then, as if to rub salt in the wound, the price differential between ad-free and ad-supported is not all that great—at present it is just $11/month, which is not a whole lot of money, especially if the impetus for your subscription is to binge a new series that caught your attention. Which only serves to reinforce the “this is for Losers” framing.

What You Need To Do About It

If you are Netflix, you’ve got an uphill battle against the perception that ad-supported Netflix is a loser package. Creating a wider price gap between ad-free and ad-supported would be one way to go, though it risks driving away all those ad-free viewers who would never watch Netflix with ads. 

So maybe the price is for new subscribers only.

You can figure it out.

If you are an advertiser, you are right to remain skeptical about who Netflix’s ad-supported subscribers are, and how they compare to their ad-free subs.

One new point in Netflix’s favor: they negotiated a deal with Sony that allows them to run ads on Sony’s content. So there will be far fewer glaring gaps between what ad-free and ad-supported viewers have access to.

Hey, it may not fix the ad-supported problem, but it’s a start.

If you are Reed Hastings, congrats on knowing how to exit gracefully (even if your departure sent the stock price downwards). You had an amazing run, turned the Albanian Army into a world power.

Now go enjoy the fruits of your labor.

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2. YouTube Won’t Be “TV” Until It Solves This

Harry Marsh, known online as Penofein, is a British YouTuber, with around 40,000 followers. Over the last month, Marsh posted a series of blatantly antisemitic videos that drew over one million views

In one video, he threw loose change on the ground in a heavily Jewish London suburb calling it a ‘Jew trap’ and then filmed unsuspecting members of the Haredi community walking past to see if they interact with it. The short clip racked up 1.4 million views on YouTube alone. 

1.4 million views.

Another popular video had him asking out Haredi women, and, when he was turned down, chasing them with a jar of coins and asking “would this help?”

But Jew Hate is not the only sort of hate speech that goes viral on YouTube.

Far from it.

Similar misogynist, homophobic and/or racist videos aimed at pretty much every marginalized group on earth routinely rack up hundreds of thousands of views on the platform before there’s enough of a public outcry to force YouTube to take them down.

And then they wonder why they have such a hard time convincing advertisers they are really TV.

Why It Matters

While most creators do fit the vision YouTube is promoting—hard-working innovative people with a positive dream and vision, the platform’s troubles with policing hate speech remains a huge problem.

Yes, they’ve gotten better.

But so have the haters. 

They’ll figure out that, say, YouTube’s AI censors routinely search and destroy posts with the “N” word in them. So they’ll find an uncontroversial word that rhymes with the forbidden one, a word that easily sneaks past the censors but whose real meaning is quite clear to their audience.

It is not, to be fair to YouTube, an easy problem to solve. There are about 500 hours of content uploaded to the platform every minute. Many of which are intended for small audiences consisting of the uploader and a few of their friends.

But it is a problem nonetheless.

And the beauty of television—moreso than any of the monoculture's mass media—was that it was brand safe.

The desire to maintain that sort of brand safety arguably led to more self-censorship than was necessary. But for brands looking to spend millions, it was also a critical reason they were comfortable spending hundreds of millions of dollars on television each year.

Now it may just be that we are in an era where that level of perfect brand safety is no longer achievable. Where the trade-off for allowing anyone to have a voice on YouTube is that we give up on the notion of Guaranteed Brand Safety and rely on the community to police itself, to realize that videos like Penofein’s are a rare exception, far less one percent of the content that runs on YouTube. 

Cold comfort for advertisers though when the outcry against those sorts of videos results in unintended levels of exposure.

As well as questions around “why are we spending money on there anyway? Isn’t it all just cat videos?”

So the issue becomes do they just grin and bear it. Or is there something YouTube can do about it?

What You Need To Do About It

If you are YouTube, you need to try even harder. 

Which is not easy—how do you get into the mindset of people for whom hate comes so easily and of Bad State Actors who have a vested interest in spreading that hate.

That said, you have billions of dollars and you have a state-of-the-art AI product. It may be as simple as devoting more resources.

Or it may just be a problem that is ultimately unsolvable. 

You just need to show more evidence of effort before giving up.

It’s a fine line: you don’t want to call attention to the problem, but at the same time you want to be clear you are intent on cleaning it up.

Though if you want my advice on how to do that, that’s a consulting gig, not a freebie.

If you are an advertiser, you need to hold their feet to the fire on this. 

While simultaneously understanding that 99.99% of what is on YouTube is harmless,  that much of it is quite popular, and that walking away from that is throwing out the proverbial baby with the bathwater.