Will Netflix Run Ads?
According to the New York Times, Netflix may begin displaying advertisements before the end of the year. Reed Hastings, the firm’s co-CEO, previously said the business would need “a year or two” to work out how to execute an ad-supported strategy.
Netflix executives made the announcement during a conference call on Tuesday regarding the company’s Q1 2022 earnings. After losing customers for the first time in more than a decade, the firm has reversed its longstanding antipathy to advertising. Since the April 19 results report, Netflix’s stock has fallen roughly 30%, making it possible for Netflix to finally open itself up to advertising.
During the earnings call, Netflix co-CEO Reed Hastings stated that he has always been opposed to the complexity of advertising and is a lover of subscriptions. Despite my enthusiasm for the idea, I believe that consumers should have the freedom to choose what they want.
The Evolving Ads Marketplace
Netflix CEO Reed Hastings stated that the company will spend the next year or two figuring out how to adopt low-end, ad-supported subscriptions. Following CFO Spencer Neumann’s statement that advertising was not now in the business’s plans, but warning, “never say never,” the corporation has reversed direction. To maintain its status as a major player in the streaming industry, Netflix may have realized the streaming market it has controlled for years is changing and has to adapt.
As a result of its rapid expansion, Netflix now confronts a wide range of challenges that advertising may be able to assist it to overcome. Despite the pandemic-related rise, the business wrote in a letter to shareholders that underlying concerns including rising competition from other streaming platforms and the huge number of households who share accounts — a figure it estimates at over 100 million — had been overlooked. Experts have been urging Netflix to implement ad-supported video on demand (AVOD) for years, despite the company’s difficult financial outcomes.
AVOD is long overdue on Netflix’s part as a means of both retaining and attracting new users. In an email, Marcella Milliet Sciorra, CMO of healthcare demand-side platform DeepIntent, claimed that “most large content companies now provide an ad-supported tier or are moving in that direction.”
As a result, Netflix will be on par with rivals like HBO Max, Amazon’s Freevee (the company’s recently rebranded IMDb TV offering), and Disney+ (which announced it will introduce an ad-supported tier later this year). The move also reflects growing consumer demand for less expensive, ad-supported content. According to a recent poll by DeepIntent and LG Commercials Solutions, two-thirds of US CTV viewers prefer to watch ads if they can pay less for the service. Advertisers who have followed consumers to CTV and AVOD channels may also find it appealing.
According to Vikrant Mathur, the co-founder of AVOD platform Future Today, “ad-supported streaming has risen in popularity due to rising customer indifference towards paying subscription services.” As SVOD providers like Netflix enter the ad-supported arena, this rise in viewing underlines the possibilities for both publishers and brands, and should help hasten the shift of spending away from linear TV towards streaming,” says the report.
For CTV campaigns, Netflix’s debut of advertisements might open up the fresh inventory for advertisers, according to Milliet Sciorra. Netflix’s Hastings said that the firm may go to other providers to supply its ad experience, which could be a bonanza for the ad-tech sector.
Instead of doing all the complicated ad-matching and data integration ourselves, we can outsource it.” To avoid becoming involved in that, he stated on the results call, “we can focus on our members producing that fantastic experience and getting monetized in an excellent way by a variety of other firms who offer that service.”
The Next Phase
According to CEO Reed Hastings, Netflix’s ad-supported strategy would be coming at a time when the sort of data-driven advertising Hastings mentioned is getting increasingly challenging. It also comes at a time when Netflix’s once-recognized data and algorithm edge has been wiped away by the likes of Amazon and Disney entering the streaming fight with far more data. According to Andre Swanston, senior vice president of the media and entertainment vertical at TransUnion, Netflix has just one touchpoint with the customer, and the development of a Two Thumbs Up feature implies its data edge is diminishing.
When it comes to building up targeting, measurement, and attribution, they don’t have enough data or time.” Outside suppliers and partners can provide all of these features (much like most of their competitors do already). Focus on creating content that keeps viewers interested (and consequently viewing more advertisements),” Swanston stated in a statement.
As the streaming environment transitions into its next phase, Netflix’s move appears inevitable. On the heels of Roku’s disappointing numbers, Innovid co-founder and CTO Tal Chalozin said that the company’s rough earnings report shows that a first act defined by cord-cutting and content matching consumer preferences has ended, replaced by one driven by SVOD that is cheaper, bundled and offset by ad-supported plans.
Although launching an ad-supported tier will be difficult, Netflix’s return to profitability may be helped by this decision.
The current average revenue per user (in the United States and Canada) is $14.78. This would please shareholders and excite advertisers who would love the opportunity to interact with consumers while they watch high-quality content, according to Eric John, vice president of the IAB’s media center, in an email.
