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Netflix tests out ads for other shows in between episodes

Lucy Handley

For the past few years, Netflix has automatically started playing the next episode of a show as the last one was finishing, to increase the odds that people stay on the couch a little bit longer.

Now Netflix users might start to see ads for other shows during those countdown seconds, as the streaming giant has said it is testing out recommendations.

"We are testing whether surfacing recommendations between episodes helps members discover stories they will enjoy faster," it said in a statement given to the website Cord Cutters.

Netflix released the statement in response to reports after a Reddit post titled "Netflix forced me to watch an unskippable ad for 'Better Call Saul'" was upvoted more than 4,000 times (the thread has since been removed).

Netflix has clarified that viewers will be able to skip such ads for other shows. "It is important to note that a member is able to skip a video preview at any time if they are not interested," its statement added.

Netflix is known for using data to suggest content to viewers and often tests users' responses, CEO Reed Hastings said in a January earnings call. "But we really, as you can understand, steer by the data where we're doing these city-level, country-level experiments to see what are the efficient ways and productive ways to get, say, 'Bright' viewing very large," he said. Members can opt out of such experiments via netflix.com/donottest.

Hastings ruled out taking ads from external companies on its site, calling it a "core differentiator." But when it comes to spending money to promote its own shows, Hastings would rather the algorithm did the work . "Our sort of Holy Grail dream is that the service was so good at promoting the new content in such relevant ways that we wouldn't have to spend externally," he said.

But Netflix does accept product placement , costing between $50,000 and $500,000 per episode. During an episode of "Stranger Things," teenage characters have an awkward dinner at a parents' home over a KFC takeaway and one of them says: "This is finger-licking good." Netflix approached KFC, said its Chief Marketing Officer Andrea Zahumensky, and the content producer had creative control. "You set boundaries, but you have to let them have creative freedom. We didn't know precisely what the script was," she told CNBC in May.

Netflix reported fewer member additions for the first time in five quarters in July, causing shares to fall more than 14 percent at one point, but analysts called it a speed bump. The company said it would spend around $8 billion on shows in 2018, plus $2 billion on marketing, with Hastings stating in a January investor post: "We are about flat-fee unlimited viewing commercial-free."

A Netflix spokesperson said that the company does hundreds of tests a year to help people find content and added: "A couple of years ago, we introduced video previews to the TV experience, because we saw that it significantly cut the time members spend browsing and helped them find something they would enjoy watching even faster. Since then, we have been experimenting even more with video based on personalized recommendations for shows and movies on the service or coming shortly, and continue to learn from our members.

In this particular case, we are testing whether surfacing recommendations between episodes helps members discover stories they will enjoy faster. It is important to note that a member is able to skip a video preview at anytime if they are not interested."

This story has been updated to include a comment from Netflix.

  • CNBC's Michelle Castillo contributed to this report.