When Netflix chief executive Reed Hastings was quizzed about the future of the streaming service at Mobile World Congress, the subject of advertising didn’t come up once. But Netflix’s success matters hugely to advertisers, broadcasters and programme-makers because it has conditioned users to a media world without ads.
And in a villa overlooking Barcelona, where Netflix hosted meetings during MWC, Todd Yellin, vice-president for product innovation, was adamant that the company isn’t tempted to trial advertising with a Spotify-style "free-mium" model – even though Netflix A/B tests ideas on users all the time.
Investing in high-quality, original content – such as The Crown, Stranger Things and House of Cards – and a refusal to interrupt the viewing experience with ads have won Netflix 94 million subscribers
"We’re not an advertising service, we’re a subscription service," he says. "One of the things that has kept me at Netflix for 11 years is we have one master: the customer."
Yellin contrasts that with the experience of his friends at Facebook and Google: "They have two masters – the advertiser and the customer. And sometimes the interests are at odds with each other. I don’t envy their jobs. Maybe I’m simple. I just want to please the customer."
Investing in high-quality, original content – such as The Crown, Stranger Things and House of Cards – and a refusal to interrupt the viewing experience with ads have won Netflix 94 million subscribers – up threefold since 2012.
"It influences the storytelling when you get rid of ads," Yellin says. "When you have all those commercials that we have in American television, you have to write for that structure of ‘leave it hanging at the end, extend it for the commercial break’. When you don’t have to write for it, it really frees up the creative."
"One reason Netiflix is so popular is it’s a great experience," - John Martin, global chief executive of CNN
But Yellin doesn’t think the video ad spot is in decline. "Must we look further than YouTube?" he asks. Its content is "very different" from that of Netflix but Yellin says: "We live well together. So we’re not predicting ads going away." However, viewing will become more on-demand as it’s "a better experience".
Mobile is growing as a platform for Netflix, although two-thirds of its viewing across 130 countries is still on the TV screen. Only in India, Japan and South Korea is mobile bigger than the TV set. Drama is Netflix’s most popular genre on mobile because these shows are "page-turners" and subscribers can’t wait to watch the next episode, Yellin adds.
Netflix’s investment in data – with content divided into tens of thousands of sub-genres – is well-known. But the company is also obsessed by picture quality. Yellin’s team has been using video compression technology to increase the density of pixels on screen while using fewer "bits" (units of information) so that it eats into less bandwidth and data. "More bang for your bit," he jokes.
In addition, Netflix is moving to store its entire catalogue on servers at local internet service providers rather than in its own offices. This reduces the time for the video signal to reach the viewer, Yellin explains.
Other innovations include adaptive streaming, which allows Netflix to reduce or improve picture quality to suit broadband strength ("the one thing we want to avoid is buffering"), and data caps. Netflix also introduced downloads in November and constantly tweaks the menu to make it "brain-dead easy" to use.
Traditional broadcasters admit Netflix is forcing them to raise their game. "One reason Netiflix is so popular is it’s a great experience," John Martin, global chief executive of CNN and Cartoon Network owner Turner, admits.
For Yellin, it all comes back to the customer. "In the era of internet TV, you want to control your experience," he says. That must pose a growing worry for advertisers.