Netflix Readies To Sell Ads

After years of resistance, NetflixNFLX
announced they would create an ad supported tier at a lower monthly fee for subscribers. The announcement came after Netflix raised their monthly fee for a standard subscription for the fifth time in seven years to $15.49. The announcement was made in April, after Netflix, in an increasingly competitive video landscape, reported a decline in global subscribers. Marketers will now be able to run ads in such popular and critically acclaimed programs as Bridgerton, Stranger Things and The Crown

Netflix will start selling ads next month across 12 global markets: Australia, Brazil, Canada, France, Germany, Italy, Japan, Korea, Mexico, Spain, the United Kingdom, and the United States. The U.S. launch is scheduled for November 3. With no background in selling ads, Netflix has, over the past six months, been building out an ad sales infrastructure no small task. This includes developing and hiring an ad sales team, creating advertiser controls, audience verification and providing audience measurement tools for marketers.

In July, to the surprise of many industry analysts, Netflix announced they were partnering with Microsoft to develop the technology required for an ad supported tier. Industry analysts pegged either Google or ComcastCMCSA
as a partner. With both companies directly competing with Netflix, Microsoft was selected. (Although Netflix is building out a video gaming service an area where Microsoft, with Xbox, has been a category leader)

Helping in the decision making was Microsoft finalizing the acquisition of Xandr in June from AT&TT
at an estimated price tag of $1 billion. Xandr can provide Netflix with capacity to either sell direct ads directly to marketers or buy ads programmatically. At the announcement it was noted that every ad served on Netflix will come only via Microsoft.

In August, Netflix announced the hiring of a senior ad sales staff with the addition of Jeremi Gorman, and Peter Naylor, both had come from the struggling Snap. Jeremi Gorman is the new President, worldwide advertising and Peter Naylor is VP, advertising sales. Both are very experienced in the digital ad sales space. At Snap, Gorman was chief business officer and prior to that ran the global field sales at Amazon Advertising. Naylor had been VP of sales, America, for Snap. Previously, Naylor was senior VP of ad sales at Hulu and before that executive VP of digital ad sales at NBCU.

Similar to linear television, Netflix will have either :15 or :30 ads that will be pre-roll or integrated into the program. At the onset there will be 4 minutes to 5 of ad time per hour. The ad load is comparable to Peacock and HBO Max. There will be an onscreen timer to let viewers know how much ad time is remaining. In the beginning some Netflix programs, because of licensing issues, will not be ad supported.

It was widely reported Netflix was seeking a CPM of $65 making it among the costliest ad rates in the industry and higher than HBO Max. Netflix also announced they would cap advertisers at the $10 million to $20 million range to limit frequency. At the launch of its ad supported tier, Netflix said there would be a limited number of “blue-chip” marketers and they would be evaluating the quality of each creative execution and messaging.

Ashwin Navin, Co-Founder & CEO, Samba TV, says, “Netflix understands the streaming consumer incredibly well. The sweet spot for streamers looking to move to an ad-supported model is one that offers five minutes or less of advertising per hour and reduces the cost of their subscription by half. This new tier threads that needle nicely.”

Earlier this month Netflix announced a third-party partnership with DoubleVerify and Integrated Ad Science (IAS). The two companies will validate the viewability of ads by real persons and protect advertisers from any fraud or invalid traffic. With brand safety a concern for many marketers, these services will also be used to safeguard marketers from ads running in programs they deem inappropriate such as gratuitous violence, sexual situations or nudity.

In addition, with the agreement, Netflix will be able to provide marketers with such ad performance metrics as reach and engagement. Also, advertisers will have targeting capabilities by program type, country, etc. At the onset however, Netflix said demographic targeting would be unavailable. The service is scheduled to be launched in first quarter 2023.

Bridget Hall, Planning Director, Americas, M&C Saatchi Performance notes, “Advertisers are excited about the influx of streaming TV innovation and more inventory options spurred by Netflix and Disney product updates, this medium is a core tactic that we continue to leverage for all different client KPIs particularly, user acquisition. However, the bar has been set high by direct partners like Roku and programmatic vendors like TradeDesk. Advertisers expect robust targeting and advanced measurement for cross-device conversion tracking. Initial speculation is that the Netflix CPMs are high, and the targeting may not be as advanced.”

Netflix also announced a three-year agreement with Nielsen’sNLSN
Digital Ad Ratings (DAR) service. The audience measurement is scheduled to begin sometime next year. In the future, Netflix will become a part of Nielsen ONE, its cross-platform initiative. At the same time of the Nielsen announcement, Netflix had reached an audience measurement agreement in the U.K. with Broadcasters Audience Research Board (BARB).

In the U.S., the new “basic with ads” plan will have a monthly fee of $6.99 and will allow for one device at a time with no downloads available. (The cost is $1 lower than Disney’s new ad supported tier expected in December.) The “basic without ads” tier will have a monthly fee of $9.99 and will allow for one device at a time with downloads available. The standard without ads package comes with a monthly fee of $15.49 and allows for viewing on two devices simultaneously with two downloads available. The “premium” option allows for viewing on four devices at the same time with four downloads available.

How Netflix monthly fees compare to rival video streamers.

Netflix

Basic with ads: $6.99

Basic without ads: $9.99

Standard without ads: $15.49

Premium: $19.99

Disney+

With ads: $7.99*

Without ads: $10.99*

HBO Max

With ads: $9.99

Without ads: $14.99

Hulu

With ads: $7.99

Without ads: $14.99

Paramount+

With ads: $4.99

Without ads: $9.99

Peacock

Premium with ads: $4.99

Without ads: $9.99

*Starts on December 8

After two successive quarters of losing subscribers, Netflix in their third quarter earnings report announced an increase in net new global subscribers of 2.4 million, with 100,000 coming from the North American market. Netflix forecasts in fourth quarter they anticipate 4.5 million net new global subscribers. Ad Age reported that Netflix expects their ad supported tier would have 500,000 subscribers by the end of the year. Netflix announced they would no longer be providing Wall Street any subscriber estimates with their earnings report but focus instead on profits and revenue.

Geetha Ranganathan, Senior Media Analyst for Bloomberg Intelligence adds, “Netflix’s 2.4 million subscriber gain in third quarter came in more than double its guidance for one million, finally reversing first half losses, but the larger story is the fourth quarter outlook, which seems conservative given the new ad offering and a solid content slate. Longer term, ads are expected to reboot user growth and while cannibalization is the single biggest worry, robust ad average revenue per user should help to reaccelerate sales.”