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Netflix Seeking Permission to Run Ads on Licensed Content

Matt Tamanini

As Netflix continues to move towards the introduction of its first-ever ad-supported subscriber tier, reports have begun to indicate that the streaming giant is working with partners to determine how much of its library will be able to integrate ads when its ad-supported video-on-demand (AVOD) option launches later this year.

According to The New York Times' Nicole Sperling and John Koblin, over the past few weeks, Netflix has begun working with studios from which it licenses movies and TV series to determine whether or not the company will be able to show ads before, during, and/or after their content. The world’s largest streamer is reportedly in negotiations with Paramount Global to insert pre-roll ads before shows and movies and to place commercials during traditional ad breaks in TV series.

Such a move would require Netflix to pay an additional fee on top of its existing licensing arrangements. As the NYT notes, this would be a similar plan to what the streamer did when it negotiated to allow customers to download certain titles; those additional fees were reportedly in the range of 20% of the original agreements. From Netflix’s perspective, this is option is preferred over cutting the content-owning studios in on any revenue generated via ad sales, which are expected to buoy the company's bottom line by 20% in the next three years.

Related: How Will Netflix Incorporate Advertising into Lower-Cost Tiers?

As more and more studios and media companies have launched their own streaming services, Netflix’s once sterling reputation for being the streaming home for all of the content that anyone could need has begun to fade. Not only are those new services creating their own buzzy original programming, but they are also ending deals with Netflix to bring the shows and movies that they own home to their respective platforms.

In doing so, Netflix has pivoted to focusing more on its own original films and series. As a result, the number of licensed films on the service has decreased by 55% year-over-year. However, Netflix still maintains contracts and agreements with many studios, including Universal, even if those deals are no longer exclusives.

While negotiating deals to insert advertisements into licensed content will present a short-term financial hurdle for Netflix, the streamer must also determine how to integrate commercial breaks into its own series, since Netflix episodes were not created for a traditional structure.

Recently, the streamer has met with multiple potential partners in order to determine how to best develop the infrastructure necessary to pull off such a major logistical change by year’s end. Netflix has reportedly discussed options with Roku, Comcast, and Google, all of whom have extensive experience in ad sales and integration.

However Netflix ends up rolling out its new ad plans, it will undoubtedly lead to a major shift in the streaming landscape; and whether or not it is ultimately viewed as a positive move for the streamer could depend on how it navigates the complicated decisions of implementation before the ad-supported tier is even available to consumers.

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