Commentary
Netflix's Better Ad-Tier Revenue Plan? First Off: Hello, Transparency
- by Wayne Friedman , Staff Writer, July 24, 2023
Netflix's ad-supported option has doubled its members since the first quarter -- now at 5 million global users, according to the company.
Of that total, 1.5 million are coming from the U.S. -- a fraction of its 75 million overall U.S./Canada paid, ad-free plan subscribers.
MoffettNathanson Research now estimates that Netflix could get to $3 billion in advertising revenue in just two years. Netflix started up its advertising tier in November last year
Stepping on the gas, Netflix now says brands are now able to target media buys across its Top 10 programs. But still, 1.5 million subscribers? Is that enough for brands to solve their reach and other issues?
There are other obstacles in the road.
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Some believe the less transparent digital media media-buying industry will continue to challenge Netflix with new brand advertisers.
“Netflix.. will be subject to the same challenges of all walled garden TV channels in an increasingly fragmented and expanding CTV ecosystem,” Jason Fairchild, chief executive officer of tvScientific, a performance-oriented connected TV ad platform, tells TV Watch.
He adds that “for reach and frequency buyers (the majority of Fortune 500 advertisers) a single channel won't be sufficient to achieve the coverage they want.”
Netflix has been the dominant player in streaming, with commanding share -- projected to remain dominant in the coming years. But that doesn't mean it alone can give brands the reach they need.
Still, it’s a start. The elimination of its “Basic” plan -- for new subscribers, anyway -- will help Netflix. The end of its ‘Basic’ plan, priced at $9.99 in the U.S., is an effort to move those potential subscribers to its “Basic With Ads” plan ($6.99 in the U.S.).
“This move will prompt a higher portion of new Netflix subscribers to opt into the ad-supported tier since the price difference between that and the Standard plan [$15.49] are so vast,” says Hunter Terry, vice president of solutions consulting/CTV commercial lead at Lotame.
And the downside to moving down to a cheaper plan?
“Subscribers have been used to having access to vast libraries of content in an ad-free environment on Netflix so there will be a period of adjustment” says Jeremy Haft, chief revenue officer at Digital Remedy.
Overall, while Netflix ad-supported tier play might have been seen as a separate little business -- perhaps it really is some insurance for a marketplace where consumers are increasingly doing more churn.
A cheaper package might keep consumers from stopping and restarting their subscription. An inexpensive Netflix ad-tier -- for what one would describe as a ‘must have’ streamer -- could produce greater value.
But Netflix can't do it by itself. Even then many believe it needs to be much more open about its data around its users/viewers -- what and how they watch the big subscription service.
Are more changes coming -- to give advertisers what they need?
Wayne Friedman is West Coast Editor of MediaPost. You can reach Wayne at wayne@mediapost.com.
To say that, "Netflix can't do it by itself" when it comes to attaining reach and frequency for advertisers seems like a rather huge understatement---or, perhaps an overstatement ,depending on how you look at it.
Of course, Netflix's ad-supported service, with its tiny U.S audience base, can't be the mainstay of a brand's maximum reach media plan. In fact, it may not even deserve to be in many plans at all when the costs of attaining a very, very small incremental reach at a very high CPM are taken into account.
If Netflix expects its ad-supported service to be a major player in the reach calculations of advertisers it had better do something dramatic to push its U.S. subscriber base up to around 30-40 million. The current figure---1.5 million---per this report, just doesn't cut it.
About five years ago, I and others were speculating on the likely success of an ad-supported Netflix service---at the time the prospects were very good. But now, it seems as if that ship has simply sailed away. The "ocean", once almost empty, is a very crowded place these days.