By Jon Swartz
Netflix Inc. co-Chief Executive Ted Sarandos made it official Thursday: Ads are coming to the streaming service, and the company is huddling with potential business partners to make it happen.
“We’ve left a big customer segment off the table, which is people who say, ‘Hey, Netflix /zigman2/quotes/202353025/composite NFLX +6.16% is too expensive for me and I don’t mind advertising,'” Sarandos said at the Cannes Lions advertising festival in a conversation with Sway podcast host Kara Swisher. “We’re adding an ad tier; we’re not adding ads to Netflix as you know it today. We’re adding an ad tier for folks who say, ‘Hey, I want a lower price and I’ll watch ads.'”
Sarandos made his comments a day after a Wall Street Journal report that Alphabet Inc.’s Google /zigman2/quotes/202490156/composite GOOGL +2.63% /zigman2/quotes/205453964/composite GOOG +2.68% and Comcast Corp.’s /zigman2/quotes/209472081/composite CMCSA +2.10% NBCUniversal are top contenders to partner with Netflix /zigman2/quotes/202353025/composite NFLX +6.16% to create an ad-supported tier of its service.
Sarandos declined to comment on a commitment to any partnership, but confirmed Netflix had started conversations with “all of them” and that they “all have different solutions.”
In April, the streamer broached the idea of a cheaper ad-supported tier to customers after announcing a loss of 200,000 subscribers in its fiscal first quarter, and a massive drop in its stock price.
“We’ve gotten through experiences where the market disconnects from core business and you have to prove the thesis still works, and is going to work long-term,” Sarandos said Thursday. “There’s a lot of uncertainty in the world today, and if they get anything that rocks the foundation of the narrative, they get nervous.
“We’re in the early days of this evolution of watching — the way that people watch and consume television. Today, we’re about 10% of what people do on TV, and about 30% of the streaming. We look at that and say there’s still a lot of time that people are watching linear TV. You look at the growth of streaming as a percentage of total, and there’s a lot of room to grow.”
Sarandos also defended Dave Chappelle, Ricky Gervais and other star comedians showcased on Netflix. “We’ve always been a supporter of the art,” he said.