Is Netflix's subscription model in danger?

The company may be seeing increased pressure from free, ad-based content.

By Benzinga Apr 19, 2013 10:15AM

Watching television © image100 CorbisBy Louis Bedigian

Investors who think Netflix (NFLX) has a great business model might want to consider the opinions of those surveyed by Zogby Analytics.

The business research firm, which surveyed 1,000 U.S. adults, found that 75% of them prefer free ad-supported content instead of having to pay for ad-free content.

While the survey's findings may receive a resounding "duh!" from the mobile game development community (GigaOm), the results are a stark contrast to the subscription levels for Netflix versus other streaming video services.

Netflix currently serves more than 30 million users worldwide (Wired). Without a free, ad-supported option available, all of those subscribers pay a monthly fee to gain access to Netflix's massive library of videos.

Hulu, on the other hand, has less than 20 million viewers for its free service, and an additional 3 million users who pay for Hulu Plus (World Tv PC).

This has to make you wonder: are consumers more willing to pay for ad-free content than they care to admit?

Not necessarily. While Hulu is only six years old, Netflix has had more than 10 years to build its customer base. The company has done a remarkable job of convincing some of its DVD-by-mail users to sign up for the streaming service, all the while attracting millions of additional customers that were entirely new to Netflix.

Hulu is only available in two countries: the United States and Japan. Netflix, on the other hand, can be found in dozens of countries worldwide.

With only two markets available, Hulu has garnered somewhere between 12 million and 19 million viewers (MediaPost). At one time the site reportedly had as many as 28 million unique viewers (GeekWire).

So polls aside, consumers are voting with their actual usage. And this could mean that the ad-supported model does not work, that users are abandoning Hulu in droves, and that Netflix will continue to reign supreme.

More from Benzinga

Apr 19, 2013 12:15PM
I Hate ads in my movies.  Hate them.
Apr 19, 2013 1:15PM
I would be willing to pay a little more if Hulu Plus had a truly ad free option. After using Netflix for years, I just recently added Hulu Plus to the household. The ads are beyond annoying. The ads on Hulu are the reason that I still prefer Netflix.
Apr 19, 2013 1:52PM
While a lot of people like to get things for free. It won't last. Look at Hulu from six years ago to now. 
Six years ago, we had a pretty good catalog of shows, new next day content, one 30 second add at each commercial break.

Now, Hulu has a smaller selection of free shows, with a lot of them having to wait a week or longer after the new episodes aired (unless you pay for Hulu+) On top of that, I now have anywhere between three to 5 minutes worth of commercials that I have to sit through. Sometimes every five minutes. Also, you can not only watch where you want. If you just need to catch the last five minutes of the show, you have to sit through all those commercials that you would have watched if you just watched it normally. 

Netflix, has a massive catalog of not just TV shows but of movies, along with original programming, that is pretty good.  While some stuff gets dropped due to contracts and what not, Netflix is constantly adding new shows. 

Apr 19, 2013 1:35PM
I have to agree with the other 2 comments adds ruin movies and shows, I have to question these stats as most people I know would be willing to pay more for no ads not the opposite.  Hulu gets worse every year more and more ads appear forcing me to pay while watching its quite unsettling.
Apr 19, 2013 4:38PM
Massive library of videos? how about a bunch of crap movies with a few good ones. I understand that Netflix is at the mercy of content holders but adding more crappy movies does not increase value. I would rather pay then be forced to watch ads. Nothing takes away from a good show or movie then ads. I believe more people will sign up for Netflix for a few months then cancel once they watch what they want then rejoin when they have new stuff. The other option is pirating which allows those who most likely would not otherwise watch the movie or show have access to it.
Apr 26, 2013 4:45PM
I pay for Netflix monthly for streaming movies and TV shows.  I despise ads.  Let me say that once again:  I DESPISE COMMERCIALS.  I have also dropped my cable to BASIC because of the commercials.  I don't think one should have to pay $100 monthly and then also be forced to watch commercials on TV.  To Hell with the greedy XOBs.  I'll also pay per view to VUDU, to get more recent releases and use Redbox occasionally, if convenient.
Apr 19, 2013 4:50PM
Sign of the times... Free Ad supported content.  Must be those college students who couldn't find a job.  Really 7.99 per month is very reasonable for the various streaming movies you get to watch.  Forget about the DVD service as you can't really watch that much and why wait when Red Box is everywhere.
Apr 19, 2013 5:26PM

It's called HitBliss,   it's in pilot right now.   You watch ads and build credits to watch shows and movies. 


It forces you to answer simple questions about the ad to make sure you watch AND it makes you click HERE AND forces the ad to be on the screen not behind another window.

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