I was impressed, but I wasn't surprised. After all, yesterday's announcement that Netflix (NASDAQ:NFLX) was launching an ad-sales program was just the next logical step in cashing in on its growing captive audience.
It was inevitable, even if Motley Fool Stock Advisor pick Netflix was the last one to see it that way.
We spoke to CEO Reed Hastings two years ago and asked him why the company wasn't expanding its advertising potential. This was his reply:
"If you look at some of the great brands that have been created, Starbucks (NASDAQ:SBUX) is an example ... a lot of people would like to advertise in the Starbucks store, but they have been very strong about creating a unique space and a unique brand. That is our philosophy also. We have got a very clean brand. We have got a brand that really represents something special and we don't intend to expand into advertising, no matter what the associated revenues, and it is really focused on, again, creating this pureness and this great brand. We think that is the right strategy to build the most valuable company."
Reed, would you like some crow to go with that latte?
Just kidding. I think this is a brilliant move for many reasons.
1. Great hire. Peggy Fry was brought on to head up the new ad department. A six-year stint at Time Warner's (NYSE:TWX) AOL was highlighted by her tenure as the vice president of interactive marketing. In that capacity, she was responsible for ad sales to movie studios. Her Rolodex alone is worth the price of admission.
2. "Rent This Space" never looked so good in red. Every day finds Netflix processing a million DVD rental transactions. How sad to see all that juicy red space go to waste. The extent of the company's mailer marketing in the past has been one Garfield movie ad, a promotion for the Spider-Man movies, and green mailers when Shrek 2 came out.
It's not just film studios with new releases that will be drawn to market to the company's more than 3 million subscribers. The potential here is huge, without ever having to sully the brand.
3. From sponsor to sponsored is money to my ears. Netflix has always been a great advertiser. Its aggressive affiliate program made sure that Webmasters big and small were pimping the service shortly after it was launched. Early on, it even made the real-world connection by teaming up with retailers like Best Buy (NYSE:BBY) to push its service to new DVD-player buyers.
These days Netflix is just as creative. Go to Yahoo! (NASDAQ:YHOO) and check out its active movie subdomain. Check out a new theatrical release and you will see a "save to rent later" Netflix tab, even though the DVD's eventual release is months away. Netflix knows how to market online. That will make it an even better advertising platform.
Even companies like eBay (NASDAQ:EBAY) have finally gotten around to accepting ads. For eBay, it was a tough move because conventional online ads would send traffic away from its site. That's why its ads are now mostly contextual spots from other eBay auctions. Netflix doesn't have that kind of problem. A visitor deep into its site is already a subscriber. Getting sent off to a relevant sponsor's site isn't going to change that.
Netflix has invested time and money to make sure it knows its customers well. Subscribers have rented movies and rated them. That kind of information helps Netflix produce practically perfect film recommendations. Just wait until that kind of targeting is applied to incoming ads.
Marketers? Control your drooling.
Other headlines you may want to check out:
- Learn more about Netflix's ad-vantageous move.
- The company is also selling some of its pre-viewed discs these days.
- It's all part of the company's realization that it needs to think about tomorrow.
Along with Netflix, Time Warner and eBay are selections of the Motley Fool Stock Advisor newsletter.
Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and investor -- since 2002. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
