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Netflix knows you hate ads, but networks still love them

Aaron Pressman

Netflix (NFLX) fans went a little bonkers on Monday after news spread that the world's largest Internet video service was testing adding commercials. The company's stratospheric shares, up 82% so far this year, even took a hit, dropping as much as 2%.

The panic was all for naught. Netflix CEO Reed Hastings took to Facebook (FB) by day's end to declare his undying -- and oft-stated -- hatred for advertising: "No advertising coming onto on Netflix. Period.”

The message was well-received -- "liked" by Facebook CEO Mark Zuckerberg, among thousands of other Netflix fans on the social network. Wall Street analysts have been not-so-subtly pushing Hastings to add ads to Netflix for years and he's been pushing back just as insistently.

But the short-lived panic goes to show that video business models on the web matter. An upstart like Netflix, built to survive without the revenue from intrusive advertising, has a considerable advantage over old-school networks and their heavy ad loads.

That was incredibly obvious to me this weekend, when I tried to watch a few episodes of NBC's (CMCSA) new detective series, "Aquarius." The Comcast-owned network had said it would make available online all episodes of the show for binge-watching, seemingly adopting the Netflix model, at least for this one new series. But each 43-minute episode was interrupted numerous times for lengthy commercial breaks. One two-minute break included ads for Verizon (VZ), Home Depot (HD) and General Mills' (GIS) Cheerios. I counted almost 10 minutes of traditional, newtwork-style ads in the 43-minute show.







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You won't being seeing those Cheerios ads on Netflix anytime soon. Netflix admitted that it was conducting trials of showing promos for some of its original shows before the start of viewers' chosen programs. But midshow interruptions and third-party ads remain totally out of bounds.

"We are not planning to test or implement third-party advertising on the Netflix service," spokesman Cliff Edwards said. "For some time, we've teased Netflix originals with short trailers after a member finishes watching a show. Some members in a limited test now are seeing teases before a show begins. We test hundreds of potential improvements to the service every year. Many never extend beyond that."

Even Netflix competitor Hulu, which started with an ad-supported model, has reportedly been considering cutting back on the intrusions.



Owned by several of the major TV networks, Hulu was long seen as an effort to blunt Netflix's disruptive potential. Hulu has gathered only 9 million subscribers for its "Plus" service, compared to 41 million Netflix subscribers at the end of March. The company is also planning to eliminate the "Plus" brand name. The pay portion of Hulu runs fewer commercials. Maybe it should be called Hulu Minus.