Commentary

Netflix's Near-Term Future With Ads: A Feast With Many Choices

by Wayne Friedman , Staff Writer, April 25, 2022

Now the hard work begins for Netflix -- for an advertising option.

At the same time, don't count on many of the 75 million subscribers in the U.S. and Canada to immediately switch to an advertising-supported service, when available.

Those subscribers are projected to amount to 20 million to 25 million. (And remember, another factor is that another 30 million or so in the U.S. and Canada are currently getting it free via password sharing, according to the company.)

The big news confirms many years of media and TV analysts touting assurances that Netflix would certainly start an advertising option -- at some point.

Can you feel that zinger now? "Told you so!" Ah -- it feels like a hard won dessert after a big meal.

But pricing could be important. If you are paying $15.49 for their most basic service, a Netflix advertising option at $4.99 could be a strong move. That $10 difference could allow hard-pressed consumers to use one or two other streaming services.

Disney+'s decision to start up an advertising-supported option will also be confirmation that an advertising option can be a good idea in the streaming world.

And don't forget that HBO Max, derived from long-time advertising-free network HBO, is also offering an advertising option. How many TV analysts were in an uproar about that?

Perhaps the biggest transition will be for marketers who love the idea of expanded streaming inventory in light of many limited advertising-time options -- just four to six minutes an hour in many cases.

Also, this is not not just for traditional heavy TV users, but marketers who can now target younger TV consumers who have been light traditional TV users.

Of course, that could mean other challenging issues, like dealing with a still-high average $40 to $50 cost-per-thousand viewers (CPM).

No matter. It gives marketers some room to achieve much-needed TV reach that has been eroding dramatically on linear TV networks.

Also, considering all the bad press Netflix has seen over a most recent 72-hour period, its TV shows continue to achieve dominant viewing levels -- much higher than its competition.

For example, in March, Nielsen's “Gauge” index had Netflix with 6.6% share of total day persons age two-plus viewing time. By way of comparison, Hulu was at a 3.3% share, followed by Amazon Prime Video at 2.3% and Disney+ with a 1.8% share.

Add in that Netflix continues to maintain its TV and movie production spending -- which was at $17 billion last year -- with a trending line that will meet or exceed that this year.

And if Netflix can make the advertising option work, and get to an estimated $1 billion to $2 billion in ad revenue a year, that would be a good thing.

So this all shows Netflix isn't going away. The ad fix is in. And all media analysts can now rest easy. Drop the zinger; take the cannoli.

advertising, netflix, streaming, television

6 comments about "Netflix's Near-Term Future With Ads: A Feast With Many Choices".

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Ed Papazian from Media Dynamics Inc, April 25, 2022 at 10:10 a.m.
Wayne, it remains to be seen exactly what Netflix comes up with regarding advertising opportunities for its AVOD service. Will it adopt a PBS- style "sponsorship" approach---as some have suggested? Or will it segregate commercials into pre- and post- roll situations with an option to "zap them after a few seconds? Also, Will Netflix allow 30-second messages or only short ones? What about audience definitions and measurements---will it be Nielsen---or something like Nielsen but independent from Netflix or will advetisers have to accept Netflix metrics? Indeed, will there be audience ---or "outcome"---guarantees? How about targeting---what methods will be used to "track" users? Will the time be sold programmatically---with the problems that this entails----or by experienced staffs of sales and packaging people who understand the needs of branding advertisers?. etc. etc. Last but not least, how long will it take for Netflix to recruit , say 30 million, AVOD subs---which would be large enough for it to interest most big spending national TV advertisers?

It may take time to get answers to these and other questions so all we can do now is watch ---and wait.
Reply

Gabriel Greenberg from Octillion, April 25, 2022 at 10:57 a.m.

Interesting article Wayne.

Lots of dynamics at play as Ed points out.

A hybrd model like Hulu where you have choice of ad-supported or ad-free will likely make the most sense here. A quick takeover by an ad-supported partner may make more sense of that partner will be willing to look at this as a new opportunity and apply many of the things discussed above.

Programattic is the best way for this to start to preserve user experience and relevance.

Netflix moving to an ad-supported model for a company that has never had ads could be a massive win or a massive distaster and how they move forward will certainly determine the answer of direction they head. Very interesting and excited to see how they move ahead.

Ed Papazian from Media Dynamics Inc, April 25, 2022 at 11:30 a.m.

Gabe, I agree with you 100% about Netflix not approaching this as a "walled garden"----that would be a really big mstake.

As regards programmatic buying, I think that there is a definite place for this as a way to capture digital video dollars and search spending, in particular. However I would recommend against it if the big branding budgets now being spent on "linear TV" are beng coveted---especially for corporate upfront deals which account for 70% of national TV ad dollars. Here, we have no way of determiing whether ads are relevant---many haven't even been devised as yet---or exactly who the targets are---in corporate buys mass audiences are really the target.

So the solution is to sell both ways---one, probably relying heavily on programmatic---would deal with digital specialist buys; the other---with experienced sales and program packaging staffs would negotiate directly with traditional national TV buyers and compete for business with the TV networks, major cable players, etc. Unless both approaches are utilized Netflix would shut itself out of a considerable amount of business---which defeats the whole purpose of this long---too long---delayed move.

Douglas Ferguson from College of Charleston, April 25, 2022 at 6:12 p.m.

Anecdotally, my friends, family, and colleagues say they will revolt. Audiences EXPECT no advertising on Netflix. Guess what happens when you stop giving your hard-earned customers exactly what they expect??

Ed Papazian from Media Dynamics Inc, April 25, 2022 at 7 p.m.

But Douglas, any Netflix sub who wants to pay more can keep his/her ad-free version just the way it is. Why revolt?If somebody else wants to save money in exchange for some ads that's their business---isn't it?

John Grono from GAP Research, April 25, 2022 at 8:45 p.m.

Good post Wayne, and good comments.

I think Netflix (and indeed the FTAs) need to exercise some caution regarding programmatic. While outsourcing it to a third-party 'specialist' is attractive, the broadcaster/streamer etc. gains on efficiency (and cost) but loses at least some degree of control of their brand. Bringing programmatic in house and have a hydrid or sales & programmatic would still be efficient but safer.