• by Karlene Lukovitz  @KLmarketdaily, July 31, 2023

Netflix is bringing its CPMs down from sky-high ad-supported launch rates of $45 to $55 to a range much more in line with rival ad-supported services: about $39 to $45.

The streaming giant — which acknowledged during its Q2 earnings call on July 20 that advertising is not yet producing “material” revenue — is reportedly focused on attracting more advertising for shows beyond its top 10, in particular.

Netflix is also restructuring its exclusive, two-year ad-tech agreement with Microsoft, the Wall Street Journal reported last week.

Microsoft, which gave Netflix a revenue guarantee to clinch the deal in mid-2022, is now said to be frustrated with the platform’s lower-than-expected ad sales growth, and willing to let Netflix add other ad-tech partners in return for a reduced guarantee. Netflix is reportedly in early talks with potential new partners.

In June, WSJ reported that Netflix was exploring building its own in-house server to enable it to introduce new ad formats.

Netflix and Microsoft have not responded to the reports.

In mid May, Netflix reported that the $6.99-per-month “Basic with Ads” tier, launched last November, had attracted more than 5 million subscribers — out of a global total of more than 232 million — with 25% of new subscribers taking the option. The ad-supported plan generated 1.5 million of the 5.89 million new subscribers reported in Q2, which was about double the number of ad-tier subscribers coming on board in Q1.

Netflix also reported that the ad tier is generating about $8.50 per month in ad revenue per subscriber, and that its average revenue per user/member (ARPU or ARPM) continues to be higher than that of the $15.49-per-month Standard ad-free plan. (Netflix last month dropped its cheapest, $10-per-month "basic" no ads plan in order to push new subscribers toward the ad-supported option.)

However, Netflix has a long way to go to drive advertising to even 10% of total revenue, CFO Spence Neumann said during the Q2 earnings call, adding that 10% is a bar that Netflix is “hoping to meet or beat over time.”

Restructuring the Microsoft deal to drop the exclusivity clause could open up significant new advertising opportunities by reducing buying obstacles, as well as ease of audience scaling.

The current reach of Netflix’s ad tier is insignificant for brands seeking mass exposure through TV/video, and having to buy through Microsoft has meant that buyers have had to do a lot of extra work not required to use other programmatic streaming services—including setting up a new demand-side platform/DSP, Jason Fairchild, CEO of CTV ad platform TVScientific, noted to Streaming Media.