Netflix Rising

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Not content to disrupt the television industry on several continents, Netflix garnered headlines this week with a couple of surprise moves.

The first was a site redesign that introduced a black background, horizontal cover art and easier scrolling. The point, according to Navin Prasad, Netflix’s lead product designer was to make the site feel less like a video store. While the screen shots we’ve seen (SEE BELOW) indicate a sharp looking redesign, what’s significant here is that they’re bothering to do a redesign at all: the site is already notably prettier and more functional than its competitors and we have not heard much (any) consumer whining about the layout.

Which is exactly when you should do a redesign.

It’s a sign to your customer base that you are always thinking about them, that you are constantly improving things, even things that currently work pretty well. That’s a sure sign of a forward-thinking company, one that is going to retain its users loyalty for years to come.

On the flip side of that lovely thought comes this development: Some users reported that they were starting to see promos for Netflix original series show up in the form of pre-roll ads, leading many to wonder if this was a prelude for Netflix rolling out a full-on ad-supported model. That notion has been raised before by detractors analysts who claim the service will not be able to support itself on $8.99 subscription fees alone. It’s a conundrum for Netflix, because the more successful their original programming is, the more original programming people want, the more their costs go up. They can view some of those production costs as marketing expenses, but it’s unclear if there’s a point at which their production expenses overtake whatever benefits they are getting from them.

That said, CEO Reed Hastings was quick to proffer a vehement “No way, José” to talk of Netflix introducing advertising, taking to Facebook to quash the rumors. While Hastings was quite adamant, we wonder how long Netflix can withstand the tide of advertising and whether they will introduce a two-tiered system: an ad-supported model that viewers can watch free of charge, and a subscription model they’ll have to pay for.

It’s an interesting proposition, as it works well with apps, where the paid version of games like Angry Birds rake in millions, but not so well for Spotify, whose paid version still needs to grow its user base. That may have everything to do with how intrusive the advertising is for frequent users, and the value they place on the content itself. Whether it’s the future of Netflix likely depends on how many new subscribers they feel an ad-supported model could bring in, taking into account both potential ad revenue and the value of the data they’re able to collect from those new users.

If that is indeed in the cards, then their ability to attract users to an ad-heavy site is one reason why their current emphasis on providing a superior customer experience may someday prove to be a very wise call.