Imagine that you’re sitting in a Brooklyn living room on a warm summer day in July of 1941—five months before the Japanese attacked Pearl Harbor. If you’re lucky enough to be one of the 4,000 American households that actually owned a television set in 1941, you might be tuned into a baseball game between the Brooklyn Dodgers and the Philadelphia Phillies on your Philco console TV—which had a screen that wasn’t much bigger than an Apple Macintosh Classic. If you had seen that game, you would also have seen America’s first TV commercial: a brief 10-second spot for Bulova. The screen displayed a simple art card—a black and white silhouette of the U.S. with a clock bearing the Bulova logo superimposed over the Midwest. A resonant announcer read the single line of copy: “America runs on Bulova time.”

It gives me pause to think how dramatically the medium of television has changed in the eight decades since that first Bulova ad. Television is now in 125 million American households. Just under 97 percent of households in the U.S. have at least one television set. The hardware has also come a long way since that tiny Philco console. Now we do our Netflix binging on 56-inch Sony flatscreens with the ability to view several shows simultaneously—a boon for sports fans who don’t want to choose between the Raiders, the Seahawks, the Cowboys, or the Chiefs.

What’s also come a long way is TV advertising technology. Witness Netflix’s move to a low-end subscriber tier with advertising that started in November of 2022. It’s just another part of their ongoing evolution. Some of us remember that Netflix began in 2007 as a DVD-by-mail rental service. They are now the world’s leading subscription and on-demand media service, with 282 million subscribers in more than 190 countries. Founder Reed Hastings has often said that he started the company after Blockbuster charged him a $40 late fee on a copy of the movie Apollo 13 that he had failed to return on time. By 2011, Netflix was developing original content. House of Cards, the political drama starring Kevin Spacey, was the first series to wear the label “Netflix Original.” Later that year, Netflix added another original series: Orange Is The New Black, an unlikely dramedy set in a women’s penitentiary.

What does all this have to do with TV advertising? Plenty. Until November 2022, Netflix had been a haven from intrusive TV ads. But Netflix realized that subscription revenue alone would not create the growth engine it required to live long and prosper. So it created a bottom subscriber tier—$6.99 a month with ads. Their marketing tries to soft-pedal the whole “ad” thing by telling prospective sign-ups that they only run two to three ads per hour of programming (“less than you think”), and that the ads will appear either at the beginning or the end of the episode, or at logical breaks in the action. 

Netflix was more than happy to announce last month that in Q3 they added more than 5 million new subscribers—50 percent of them signing up for the $6.99 value menu item. It should surprise no one that in this economy, consumers are looking for bargains. The proof is that 2.5 million viewers seem to be willing to endure a few ads per hour to get 50 percent off the cost of a standard Netflix subscription at $15.49 a month.

I see this going one of two ways. Netflix’s “plus-ads” subscription could conceivably usher in a golden age in streaming advertising. Yes. I say this because Netflix has built its image around groundbreaking, high-quality content that appeals to a discerning audience. Discerning viewers would therefore expect that the ads that they’re forced to see on Netflix (skipping or fast-forwarding ads is impossible) will be equally high quality—or at least well above the dreck that plagues network TV and cable with all those awful spots (think funeral insurance and 6-month supplies of emergency food with a ten-year shelf life). That’s good news for agency creatives.

The other way that’s frankly not so good has to do with algorithms. The $6.99 subscribers will give Netflix loads of data on their viewing habits, allowing them to target those two to three ads per hour accordingly. But what I worry about more are the algorithmic calculations that may influence content development. A recent opinion article in the New York Times correctly points out that there’s already a lot of “mid TV” on Netflix—shows like The Diplomat which, though well-written, well-produced, and cast with stars are really “middle-of-the-road” creative output that lack the explosive power of a House of Cards or Orange Is The New Black—shows that gave Netflix its reputation for outstanding original content. Does this signal an era in Netflix’s development where they’re content to “go for the gold”—keeping subscribers fed on mid-TV—instead of blazing new trails with original content as bold as their early stuff?

By the way, if you’re thinking about buying ad time on Netflix, know that two years later, they’re still working out the kinks. Netflix has traditionally outsourced ad-tracking functions to multiple partners, including Microsoft. However, the company announced that in 2025, it will take all these tracking functions in-house, enabling them to give advertisers more of the granular consumer engagement data that they crave. The early reports also suggest that advertising on Netflix shouldn’t be perceived as a quick fix. Ad dollars are best spent by advertisers wanting to build brand awareness over time or brands that would have a clear affinity for a particular piece of Netflix content.

I’m actually enjoying my $ 6.99-a-month Netflix subscription. And as a guy who was weaned on 30-minute sitcoms (22 minutes of program, 8 minutes of ads), I don’t mind a few commercials.

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