Netflix Ad Woes: Inventory Shortage, Underdelivery, Cash Back To Advertisers
- by Wayne Friedman , December 15, 2022
Netflix is off to a rough start with its advertising option, giving back cash to its initial advertisers due to an inability to find enough ad inventory for the high-demand fourth-quarter period, according to media executives.
This has caused a viewer guarantee shortfall for some marketers.
“Underdelivery really varies by client restrictions, flight weeks, etc.” according to one veteran media agency executive who spoke with Television News Daily. “But we've seen some clients under by 20%-ish.”
The executive added: “The impressions are guaranteed in full, so this is just giving advertisers the option to take dollars back... essentially “pay on delivery” versus carrying liability into 2023.”
The ad option, which started up on November 3, called “Basic with Ads” and priced at $6.99, was “nearly sold out.” Reports suggest Netflix was placing a high value for its inventory -- at around $65 cost per thousand viewers (CPMs).
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Netflix's stock price was down 8% on Thursday to $293.13.
The media agency executive did give Netflix some credit in trying to solve its initial challenges: “They're being good partners and recognizing they can’t meet projected launch numbers so giving advertisers the opportunity to take cash back to reinvest
Another media executive believed Netflix would have some initial issues. “Knew it was a shit show... it is not good.”
A Netflix spokesperson did not respond to inquiries from Television News Daily by press time.
Considering how modest the Netflix projections for their launch were in the first place, this is hardly a good sign as it means that they are performing fairly well under what was expected. As for the give back money part, that's something that "legacy TV' ad sellers almost always avoid, using make goods instead. It's one more sign that Netflix is emabrked on a learning process that may take some time to sort out---as it will be, eventually.
I suspect they'll figure it out. They likely consider this initial foray like a "friends and family" week at a restaurant, where the establishment loses money on the meals but works out the kinks in the kitchen and with the staff.
An underdelivery of 20 percent doesn't sound too bad to this former TV buyer. Broadcast/cable networks typically sell anticitpating about a 10% shortfall, and syndicators have upwards of 20 to 40 percent underdelivery.
The rookie mistake Netflix apparently made is not holding aside enough inventory to take care of a lower than expected audience.
Cash back is not unheard of. Syndicators are willing to do it, andf the networks, if there is an extreme inventory shortage will do it, but it's quite rare.
Syndictors of new shows often deliberately over promise their anticipated GRPs by margins as high as 25-50% because this induces buyers to pay higher CPMs for higher rated shows---a sad but standard ploy in TV---but the sellers set aside enough commercial postions to deal with the inevitable "undelivery". If, by some chance, the new show does better than expected in the Nielsens the set aside GRPs can still be sold off at higher than upfront scatter CPMs.
@Ed. The ploy of underdelivery in syndicstion is sad but standard, but buyers allow it to happen. Except me. I bought it on realistic rating estimates, or not at all. Therefore I didn't buy much syndication.
Glad to hear that, Darrin.