James Murdoch, who took over as CEO of 21st Century Fox in July, doesn't see Netflix as a harbinger of a world without advertising. But he said the ways brands reach consumers through video has to change.
"It's easy for people to look at ad-free services like a Netflix or something like that and say, 'Well this advertising business is too hard, and no one is going to want that,'" Murdoch said in a conversation with Discovery CEO David Zaslav at the Paley Center's annual International Council Summit in New York.
"I don't think it's the right thing for the video business to give up on advertising in any way," said Murdoch. "I do think it's something that has to evolve much more rapidly, and we can innovate much faster."
Murdoch said streaming sites like Hulu, which is partly owned by 21st Century Fox, should continue to drive innovation. When viewers start a show on the platform, they are given a choice: Watch a three-minute video from a sponsor and enjoy the rest of the show without ads, or watch with the normal ad breaks.
Murdoch said brands actually get a better cost per thousand viewers (CPM) with a longer video at the beginning. And the choice gives viewers more control, something he argued the industry needs to do a better job of. When audiences are "given the empowerment to be introduced as a bidder for their own time and to manage that, it's a much better experience watching the ad. And you actually end up thanking the sponsor for bringing you an ad-free experience," Murdoch said.
Empowering consumers to make their own decisions is something the ad industry has been loath to do, he said. But when Hulu started allowing customers to opt out of ads for an extra $4 a month, the results were positive for everyone. "The people who stay with the limited ad load complain less about the ads, because they've actually consciously made that choice [to save $4]," he said.
Innovation can apply to the traditional TV world, too. Empire, the hit Fox show, announced a deal with Pepsi that will see the brand woven into a three-episode arc leading up to the show's mid-season finale.
The storyline will focus on Jussie Smollet's character, Jamal, shooting a commercial for the beverage maker, with Empire's creator Lee Daniels even appearing as the commercial's director.
"It's not something that's inauthentic," said Murdoch. "It works within the narrative of the show and actually pushes that narrative forward."