Commentary

What An Ad-Supported Netflix Tier Will Mean For TV Marketers

by Dave Morgan , Featured Contributor, September 15, 2022

I’ve been having fun playing our industry’s longest-running parlor game -- The Netflix & Advertising Guessing Game -- where we pretend to be either Reed Hastings or Ted Sarandos, Netflix’s co-CEOs, and pontificate on how everything in the world of advertising would be great if Netflix would just follow our counsel and run its recently announced ad-supported tier in exactly the ways we recommend.

Yes, we are probably all frustrated TV sports color commentators.

I took the show on the road yesterday and did it on stage in Toronto at Canada’s largest TV ad event with long-time friend Robert Tas, a partner at McKinsey and one of the smartest marketers and digital strategists I know. He ran digital marketing and growth at both JPMorgan Chase and 1-800-FLOWERS, and has had a long, successful career as a tech executive and entrepreneur.

Our session, titled “What an ad-supported Netflix tier would mean for TV marketers,” began with a lot of clapping and excitement among hundreds of TV and video ad buyers about the prospect of Netflix with ads. Tas’s opening line: “Let’s all calm down. We’ve got a lot to figure out first before we get too excited.”

He noted that there are four big issues Netflix needs to address before we can determine whether or not an ad-supported Netflix will dramatically change TV video ad marketing, measurement and culture. His thinking ran along these lines:

Market. Who will be the viewers of ads on Netflix? Will they be incremental to TV? Will they be incremental to other ad-supported streamers? If so, Netflix will have lots of premium pricing opportunities for its ads.

Marketing. Can Netflix convert binge watchers on the weekends into predictable, daily viewers who tune in every day, every week, every month, just as advertisers need them? Can Netflix build a program promotion machine and program release schedules like TV networks do to ensure audience availability when and where advertisers need them?

Measurement. The table stakes for targeting and measurement in CTV ads are well-established. The Interactive Advertising Bureau has had them standardized for years, and all the players in the market comply -- even walled gardens like Google’s YouTube and Amazon. Netflix must quickly join that crowd as well, certainly if it wants premium pricing -- and to have its numbers trusted and accepted by advertisers and agencies.

Culture. Movie companies are led by studio executives, ad-supported TV companies by sales executives. Netflix has been all about the former. Is the company ready to build a future thinking and acting like the latter?

It might not be as easy as you think, since promising talent ad-free environments for their shows has been a big part of Netflix’s attractiveness to Hollywood. Fortunately for Netflix, it recently announced super-strong hires, with Jeremy Gorman as president of worldwide advertising and Peter Naylor as vice president of sales. Both have been rock stars at companies like Google, NBCU, Hulu and Snap.

What’s your take on the Netflix & advertising guessing game?

advertising, netflix, streaming, tv

4 comments about "What An Ad-Supported Netflix Tier Will Mean For TV Marketers".

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Jack Wakshlag from Media Strategy, Research & Analytics, September 15, 2022 at 5:36 p.m.
If this yields and increase in the supply of eyeballs, and its audience will be a combination of competitor's current eyeballs (no increase in supply) plus eyeballs from other sources (where the increase comes from) the inevitable and fundamental rules of supply and demand will apply. There is no way this will drive prices up, though there might be some advertisers that choose to pay for bragging rightrs here. More supply is good news for advertisers. Not so for sellers of ad time.
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Ed Papazian from Media Dynamics Inc, September 15, 2022 at 6:36 p.m.

Guys, have you seen what Netflix is reportedly telling time buyers about where it expects to be midway through next year as concerns subscribers for its AVOD service. They are projecting only 40 million viewers---not subs---world wide with 13 million of them in the U.S. That works out to something like 6 million U.S. subs---with several adults per home watching---not per minute but at some time per week or month, let's say. If Netflix's AVOD service does as well rating-wise as it's ad-free service with a 7% share of viewing, this would yield an average total day commercial minute "audience" of about 180,000 adults---which is rather tiny compared to any broadcast TV network as well as many of the larger and midsized cable channels. As for it's reach potential we're talking about 5% of the adult TV home pop ---if they let you buy enough spots to maximize your reach. Even if they build to 30-40 million U.S. subs---which I think is possible---but it may take time----that's a potential reach of only a third of the adult TV population.

My point is that Netflix is hardly in a position to revolutionize how TV time is bought or to radically benefit most marketers---it will simply be one of many ad sellers, reaching a somewhat more balanced audience---demographically--- than broadcast TV---but hardly an elite, vastly upscale or youthful constituency. And it will draw most of its audience piecemeal from its many competitors---"linear" as well as streaming---like everyone else. As for expanding the number of eyeballs for sale to advertisers---of course---but not greatly. Attracting new viewers from digital or some other place? That's highly unlikely---unless a lot of really unusual, unique and high impact programming is developed. As for binge viewing, the incidence of such activity is vastly over hyped. Binge viewing probably accounts for 1% of all viewing---and, perhaps, 10-20 % for Netflix. But it's highly unlikely that the Netflix AVOD service will attract hosts of new binge watchers unless it steals them from it's parent--the larger---much larger----ad supported Netflix.

Jack Wakshlag from Media Strategy, Research & Analytics replied, September 15, 2022 at 7:02 p.m.

Thanks for providing some figures to highlight the issues. Always good to see analysis replace hype.

Phil Guarascio from PG Ventures LLC, September 15, 2022 at 10:22 p.m.

Tas is on the money. However, I think Netflix will have to go beyond the basics to extract any kind of signicant pricing premium by conducting tight audience " source and disposition " type research. An expensive proposition that could even influence programming and scheduling descions. Umm sorta what happens at some " shops" now. Hell, if I were taking this job, I'd have it in my contract ( situation never arose, just sayin')