In November of 2022, Netflix launched something it’s tried to avoid since inception … monetizing its streaming content with an ad-supported tier. This move comes in response to consumer voting with their wallets to support platforms that are free or cost less with ads.

Years ago, Netflix reaped the benefits of television companies, like NBCUniversal (The Office) and WBDiscovery (HGTV and Food Network programs) accepting huge dollars to repurpose their content on Netflix’s ever-growing streaming platform. Unsurprisingly, subscribers were happy to fork over the cash to take advantage of an environment free of ads and hours of binge-watching capabilities.

Fast forward to today, when these television companies recaptured their content to make money for themselves, hence the birth of the ad-supported streamers we see today like Peacock and Discovery+. Netflix, which saw over 220 million+ subscribers at its peak, saw a reduction of over 66% in just the first half of the year. The Netflix content pipeline isn’t going away, it just needs YOU to invest in watching commercials to keep new and exciting content coming. With the help of Microsoft, Netflix started selling advertising in the US for $6.99 a month and an anticipated 5-6 minutes of ads per hour.  These subscriptions are expected to grow to 500,000 ad subscriptions by the end of 2022.  

The truth is 80% of subscribers are willing to watch ads to keep subscription costs low or free. This is an astonishing statistic and one that Netflix can no longer “ignore” if they want to keep their loyalists fed with must-watch content. Giving subscribers the option to choose their streaming experience based on what is best for their preferences and pocketbook is likely to help Netflix emerge victorious from the streaming war and continue to keep its hungry streamers happy.

However, Netflix is not rolling out the red carpet to every brand that wants to advertise on its service. The streaming giant launched with a select group of brands who opened their wallets to the tune of $20MM to test their ad space. Their hope? These early adopters will be the first to buy inventory programmatically through Microsoft’s Xander DSP.  

Unsurprisingly, Netflix will continue to be a walled garden in the digital space.  While advertisers will want some proof of performance, don’t expect Netflix to give away the goods. Netflix has put partnerships in place to help mitigate advertiser concerns around content alignment and audience size. However, the level of detail shared will continue to be minimal if any at all.  As a part of the launch, brands will have to be prepared to be comfortable with being uncomfortable with the inevitably high cost per thousand while navigating uncharted waters.

When the time comes for all brands to dabble in Netflix’s ad space, it will be important for marketers and buyers to determine if the juice is worth the squeeze. And, the squeeze may mean not getting much back in return. Netflix’s expectation is that the demand will be high and that brands will pay to play on their platform. Once the newness wears off, expect a shift where brands will want better insights for their investment to prove its worth.  

In the end, Netflix will continue to produce “must-binge” content with the help of ads to feed the pipeline. And soon, there will either be pushback or acceptance of what Netflix is willing to share with the brands who support it – leaving brands to wonder: Is it worth it to be first … or can I stomach the FOMO? We will continue to monitor the successes and learnings for Netflix’s launch of ads as we evaluate future opportunities for our clients. As eyeballs continue to diversify across screens, Netflix will likely be another platform to evaluate. The streamer has proved it has programs worth watching as long as it can pay to keep the content faucets running. But, to stay on top, it’s going to take a bit more creativity than going all-in on advertising. What that looks like is yet to be determined – but something tells me corporate mergers may be on the horizon. 

Have questions or theories about the future of streaming? We’d love to hear them.

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Sources: 

Masha Abarinova, “Majority of connected TV users are streaming with ads - study”, fiercevideo.com, 10/17/2022

Bevin Fletcher, “Netflix picks Microsoft as partner for ad-supported streaming plans”, fiercevideo.com, 07/13/2022

Lauren Johnson and Elizabeth Pham Janowski, “Netflix has launched its ad-supported tier - here’s everything we need to know about the how the streaming giant is pitching advertisers”, businessinsider.com, 11/3/2022

Maor Sandra, “What Does Netflix’s New Ad Model Mean for Advertisers?”, Forbes.com, Forbes Technology Council, 11/29/2022