Several months ago there were rumors that Netflix was considering testing advertisements on the video-streaming platform, which sent the internet into an absolute flurry. The outrage got bad enough that Netflix CEO Reed Hastings had to come out himself and say this would not be the case.
We published the results from a survey we ran recently that showed 79% of Netflix subscribers would rather pay more for the service than see ads in-between their favorite shows and movies. This lends us to believe that Netflix made the right decision in squashing this rumor, even if it was potentially true, as fast as possible.
Recently, Hulu released an ad-free option themselves, after years of being an ad-centric subscription service that helped subsidize the cost of next day television with what amounted to slightly less advertisements than a standard cable subscription. Consumers now have the opportunity to upgrade their accounts to be ad-free for $4 a month, making a monthly subscription $11.99.
But why the sudden change? This ad-free option seemingly came out of nowhere (there were rumors circulating of a secret project many speculated to be an ad-free option titled NOAH for No Ads Hulu). Hulu CEO Mike Hopkins spoke at the GroupM Next conference in New York last week and addressed how this upgrade option plays into Hulu’s bigger strategy for more market penetration.
Interestingly, one of the biggest sources of inspiration for this change came directly from the rants Hulu’s data team collected from social media. Each day, the company would scrape Twitter for sentiment toward the Hulu brand, and found that advertisements were a major problem for a vocal minority of subscribers. But this vocal minority translated into an extremely negative brand perception, which Hopkins argued was extremely damaging for new user acquisition and growth. In other words, if enough people are ranting about the service online, it goes a long way in preventing new subscriptions.
According to the Wall Street Journal, Hopkins argued, however, that he does not believe most consumers will actually upgrade their accounts, but that it is still extremely important for Hulu to at least provide the option. This gives Hulu an ‘out’ of sorts, distancing themselves from advertising in general, offering subscribers the option to avoid being subjected to the onslaught of advertisements normally found on network television. It’s pretty clear that Netflix has spoiled its users with the elimination of ads, making it hard for other streaming services to rely on the diversified revenue stream.
There’s no doubt that Hulu has its sights set on massive user growth, and by now offering an ad-free option, it will likely work as a catalyst to get new subscribers at least considering a subscription to the service. In some ways it works to make the ad-supported option seem like the value option, which could lead to a healthy increase to Hulu’s nine million current subscribers.