Netflix's Reed Hastings Has His 'Read My Lips' Moment With No Ads Pledge

NEW YORK (TheStreet) -- Netflix  (NFLX) CEO Reed Hastings may have inadvertently taken a page out of the playbook of former President George H.W. Bush.

For those who don't recall, back in 1988, when Bush accepted the Republican presidential nomination, he famously declared, "Read my lips: No new taxes," and made the pledge a central part of his campaign. Two years later, Bush agreed to a budget compromise with Congress that raised several taxes in place. And in 1992, Bush lost the election to Democrat Bill Clinton.

Earlier this week, Bush's infamous comment was evoked when Hastings took to his Facebook  (FB) page in an attempt to alleviate subscriber fears about commercials or other kinds of advertisements appearing on his video-streaming company's programming.

"No advertising coming onto Netflix. Period," Hastings said. "Just adding relevant cool trailers for other Netflix content you are likely to love."

Hastings might be trying to appeal to Netflix's subscribers, who pay from $7.99 to $11.99 a month in the U.S. to watch the upcoming new season of Orange Is The New Black and movies like Apocalypse Now commercial free. But with its content-acquisition costs continuing to rise, a question remains about whether Hastings' "no advertising" pledge is one that should be etched in stone.

"They certainly have no immediate plans" for ads, said Laura Martin of Needham & Co. "But forever is too long a promise to make."

By selling its offerings as a solely subscriber-supported service, Netflix has been able to position itself as the online alternative to Time Warner's  (TWX) HBO, which is also commercial free and debuted its own Internet-based video service, HBO Now, in April.

But Martin noted that of all the TV channels available, "less than half a dozen have no advertising," and it might make sense for Netflix to explore commercial ads down the road.

"Having two revenue streams is much more highly valued on Wall Street," Martin said. "It's a silly revenue stream to ignore."

When asked whether Hastings might change his mind about the no-ads-ever declaration, Netflix spokesman Cliff Edwards left little debate as to where the CEO stands.

"Reed's statement stands by itself," Edwards said. "He is the CEO after all and would know the plan. We've said consistently that the more subscribers we get, the more we can afford to fund Netflix originals and license other content."

And Netflix is continuing to add subscribers. During the first quarter of the year, Netflix's U.S. subscriber base rose by 5.7 million to 41.4 million members. The company now has 62.3 million subscribers worldwide.

"I think it's feasible that they could get away without ads," said IHS analyst Dan Cryan. "Advertising is undoubtedly a potentially interesting revenue stream for TV network, but they no means have to be ad-supported."

With Netflix likely coming to an end of rapid international expansion next year and its content portfolio leaning toward programming it's commissions as opposed to works requiring third-party rights, the company is becoming more of a master of its own destiny, Cryan said.

The company is "also cycling through a slow price increase, and they charge more for more devices" to stream Netflix material simultaneously, Cryan said. "There are ways for them to increase revenue without moving on to advertising."

But if Netflix does end up bringing ads to its service, Hastings' "read my lips"-style post may be one he'll want to delete.

 

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

More from Opinion

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy

Throwback Thursday: Tesla, Chip Stocks, TheStreet's Picks

Throwback Thursday: Tesla, Chip Stocks, TheStreet's Picks

12 Stocks That Our Writers and Their Sources Recommend You Buy Here

12 Stocks That Our Writers and Their Sources Recommend You Buy Here

Musk Goes on Unoriginal Media Tirade

Musk Goes on Unoriginal Media Tirade

What's Happening in Video Games This Week: On the Road to E3

What's Happening in Video Games This Week: On the Road to E3