MoffettNathanson Research has some suggestions for Netflix.
Given its strong position in attracting 6% of all TV minutes viewed (tied with YouTube), leading all streaming video services, according to The Gauge report from Nielsen: “It appears they would be best positioned to capture the emerging AVOD market if they embrace advertising.”
MoffettNathanson estimates the advertising video-on-demand (AVOD) market at $7.8 billion this year, and $11 billion next year.
Netflix has long resisted a move to add an advertising option to its service. The analyst group notes that Netflix CEO Reed Hastings has said that in order to compete in advertising, you need lots of data from a number of sources. Google, Facebook and Amazon do this well, he says.
“If you wanted to succeed in online advertising, you can’t just have a little data,” he said during an fourth-quarter 2019 earnings call. One needs to spend heavily.
Still, MoffettNathanson believes the streamer may not have to move into deep data acquisition when it comes to competing with traditional TV advertising platforms: “Netflix does not need the hyper-targeted advertising capabilities that have driven the online platforms.”
AVOD platforms now are “seen as a more efficient replacement for TV advertising focused on top-of-funnel branding objectives (for now).”
MoffettNathanson also believes Netflix's new consumer-products business could be a major revenue source for the subscription video-on-demand platform. Netflix recently started an ecommerce platform -- Netflix.shop.
The analyst estimates it could hit $3 billion in revenue by 2025, accounting for 6% of Netflix's overall business. By way of comparison, that would be half of Walt Disney’s consumer-product revenue in that year: $6 billion.
It's also important to note that consumer products are typically a high-margin business -- around 45% for Disney, for example.
For some time now, many Netflix analysts have been concerned about slower global subscriber growth for the company, as well as new streaming competitors eating into Netflix's dominance.