New Netflix Might Net Nice Numbers

After years of AVODs existing as the main form of streaming options for most, Netflix has decided to open their gates to advertisers. To this point, Netflix had been the longest existing streaming service to go without placing third party advertisements. Opening up after over 20 years could provide a goldmine of unfettered data for marketers. The shift could reflect Netflix’s recognition that the streaming space it has dominated for years is evolving, and that the company needs to change with the times if it is to remain a key player. Opening up a new, large, source for advertising is always a good omen for marketers. More quality inventory brings scaling and reduces pricing pressure within the market.

This announcement came on the heels of Accenture¹ doing research into streaming consumers opinions on AVODS. They found that over 60% of respondents thought paying for all the entertainment subscriptions they want is too expensive, around 70% plan “no change” or a “decrease” in their entertainment viewing next year, and 73% would not pay more to remove advertisements from their shows. Now while that may not be good news for Netflix, it’s definitely good news for advertisers. Knowing that most consumers will stick to a cheaper tier with commercials/advertisements without any plans to decrease viewership means that Netflix will be a golden opportunity for untapped audiences.

The untapped household audiences may be easy to separate thanks to Netflix allowing multiple profiles (including a filtered profile for young children) on a single subscription. Not to mention Netflix has authenticated inventory, which means that publishers have log-ins behind their impressions so they can be aware of which person and/or household is streaming at any given time. Being able to narrow down who is watching from one account will make it easier to cater advertisements to their tastes. Just because Mom and Dad pay for the account, doesn’t mean that the rest of the household has their same tastes. Advertisements can easily be tailored to the viewers’ specific watching habits.

Despite not being an AVOD, Netflix is not new to advertising. In the past, the company has opted out of placing commercials between shows and instead gone for old fashioned product placement. Big brands have scrambled for the chance to be featured in their shows. For example, take a look at Stranger Things. Multiple globally recognized brands such as Burger King, Levis, and Nike “retroized” their logos just to have a few seconds of screentime. Beyond that, the brand has created a cult following, even satirizing itself with its “Netflix is a Joke” side brand which hosts festivals advertising their shows alongside brands. Advertising won’t be an issue for the brand, but the logistics of it all might be.

In a recent letter to shareholders, the company noted the pandemic-related boost had obscured underlying issues that are impeding growth, including increased competition from other streaming platforms. This isn’t terribly surprising as they are one of the last platforms to announce a transition to AVOD. But it does mean that there will be a need for Netflix to play catch-up with other streaming platforms in terms of technology and sales. In order for Netflix to compete, it will need to hire salespeople to sell ads and build/buy the ad technology infrastructure. Currently, Netflix might lack the proper tools to serve, sell, and track ads, but this can be easily achieved through partnerships with existing ad tech companies and/or DSPs.

What’s more of a challenge for Netflix than for other publishers that already have ad-supported tiers, like Hulu or HBO Max, is that the company is used by consumers around the globe. This means that Netflix will need globally established and sophisticated advertising/marketing partners as managing different ad serving rules and internet service providers across different countries can be complex. Not to mention any advertising/marketing partner they bring on will also need to have omnichannel capabilities as Netflix can be consumed cross-platform. This means that starting off, Netflix will probably limit who has access to sell their inventory. This will have smaller advertisers facing the big choice of whether it’s more important for them to get access to Netflix’s inventory, or if it is more important to keep using the buying technology that they selected because it meets their business needs. As access to different content becomes more exclusive, advertisers are going to have to balance access to the technology they need with access to the content they want. And it may complicate those decisions.

To accomplish this, Netflix will likely need to rely on the existing advertising/marketing ecosystem to successfully serve its ads. It will also need to ensure they are matched against the right content and accurately measure their performance. But these companies have not always lived up to their promises. Advertising and marketing companies have been providing digital ads on the open web for decades, but there has always been room for error. Recent studies² have found advertising and marketing companies are responsible for the loss of around 10 to 20% of publisher revenue by not catching misdirected ads.

All of this reshaping is expected to occur before the end of 2023. It will require a lot of work from many different angles to restructure, but the opportunities are there. Though it might not seem like it at the beginning, the more Netflix adapts and learns about its customer base, the better it will be for marketers and advertisers. As an omnichannel solution, Stirista understands the challenges that will come along with new developments to different CTV/OTT channels and we are constantly adapting and bettering ourselves to help those who need it.


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