Finally, some details on Netflix’s ad-supported offering — but buyers are stunned at what they’re hearing
Netflix’s move to hire a dynamic duo to oversee its global ad sales ambitions couldn’t come at a better — or worse — time. At last, media buyers are finally getting the information they need to start making plans to spend clients’ ad dollars on what’s been a highly anticipated launch.
But the buyers Digiday reached, who spoke on condition of anonymity to speak freely, were shocked at some of what Netflix is asking for — namely a $65 CPM that’s higher than last year’s Super Bowl, along with a lack of third-party measurement and very humble growth expectations.
At least the hiring of Snap executives Jeremi Gorman and Peter Naylor, two highly regarded digital and streaming veterans who become, respectively, president of worldwide advertising and vp ad sales, is providing buyers with answers, even if those buyers don’t like them all. Both executives start immediately.
One big surprise is the relative immediacy of the new subscription ad-supported tier, which is apparently slated to launch Nov. 1.
What now, Microsoft?
Microsoft, whose Xandr unit was recruited in July to be the ad-sales partner, has been struggling to answer questions until now, frustrating buyers whose clients are asking to appear against Netflix content.
One buyer observed that the hiring of Gorman and Naylor indicates Netflix will ultimately take over the external ad sales effort, which could relegate Microsoft/Xandr to the role of developing the back-office end of the effort.
Indeed, few details are widely known about the extent of Microsoft Advertising’s input, which is generally regarded as not being the strongest of video sales forces. “[The Microsoft team] keeps throwing Netflix under the bus,” said one buyer. “‘We don’t know that… [Netflix] hasn’t told us that.’ They’re not the most dynamic sales organization around, so when they’ve got somebody who’s not sharing information, it’s a really dual-edged sword.”
For instance, once Nov. 1 rolls around, buyers are already speculating about what Microsoft’s role will actually be: integrating its ad server, making Netflix’s inventory available, or will it make full (and exclusive) use of its Xandr assets — mimicking a walled garden?
One buyer thinks its role will remain back-office only. “That was what Xandr did way back when it was AppNexus — they built platforms for others,” said the buyer. “Microsoft has this window of time to convince Netflix that they are the right ad serving platform. That to me was very revealing in these ad hires — the fact that… you didn’t see Microsoft hire a head video ad sales, Netflix did.”
The details of Netflix’s pitch
It seems Gorman and Naylor, who have worked together for two years now at Snap, have already had some impact on the sales approach, in that buyers are now finally getting some details they’ve been asking for over the last month but Microsoft/Xandr had been unable to answer. Here’s what we know:
- The ad-supported tier will launch Nov. 1, 2022 (perhaps as a means to beating Disney+’s ad-supported tier, which launches in December)
- Execs are hopeful they’ll have 500,000 subscribers by the end of 2022 (a very modest number given Netflix’s 220 million or so total sub count)
- There will be no third-party measurement partner at the outset
- Netflix is now providing a total switch in positioning from telling buyers clients would cap out at $20 million spend to declaring $20 million the base amount around which to negotiate
- The asking CPM is $65
You’re asking for what? In this market?
It’s the $65 CPM for untested inventory — an amount that one buyer noted is higher than the asking price for last year’s Super Bowl (which was closer to $56) — that shocked buyers the most.
The current scatter market, according to one major video buyer who also declined to speak on the record, is soft for a number of reasons, so this doesn’t seem to be the right time to be asking for such an astronomical rate.
“Unfortunately, we’re seeing a fair amount of slippage from our [upfront] hold orders, and with a couple of clients, it’s significant money,” said the buyer. “Some of it is because of economic concerns, some are delays in drug launches. Some are cost of goods, some are business concerns, some are unique situations of a plant burning down. Everybody seems like they’ve got a different problem. Most of the hit is in fourth quarter.”
That means there’s even more available inventory working the Q3 marketplace than initially expected, which drives pricing further down. Even performance marketers are feeling the softness of the scatter market, said Raphael Rivilla, chief media officer of independent agency Marcus Thomas.
“On performance clients, we’ve seen on average a 4% CPM drop from 2021 to 2022, but looking at just the last month, we’ve seen an 11% drop in costs, which makes it easier to hit a hard KPI,” said Rivilla. “For our brand awareness clients, we’ve seen on average 32% drop in CPMs from 2021 to 2022, and around a 14% drop in the last month.”
That didn’t stop Netflix/Microsoft from pounding the proverbial pavement. Digiday previously reported that Microsoft and Netflix executives had organized “hush-hush” briefings with key Madison Avenue decision makers, including programmatic specialists. The duo’s efforts have yet to satiate the buy-side’s appetite for details, in particular, questions remain over how much automation will play a part in the offering. Speaking earlier this month, one described attempts to woo Madison Avenue as “chaos” with little (if any) details on what ad placements would be offered.
The news that no third-party measurement firm would be recruited, at least at the outset of the new ad-supported tier, wasn’t greeted with cheers by buyers who remain skeptical of the attractive, but still fundamentally unproven inventory.
The marketplace has changed
Not helping matters, noted one buyer, is that both Gorman and Naylor for the last two years have been out of the premium video ad sales marketplace, and a lot has changed during that time. But they both have significant experience that predates their Snap tenures — for example, Naylor is widely credited with putting Hulu on the map of buyers and clients during his tenure there.
But the bottom line is, clients are asking to get onto Netflix, despite current buyer concerns. “Water has to find its level,” said one buyer, optimistic that Netflix will be more flexible with pricing once it’s in market.
“We want to advertise on Netflix,” the buyer added. “It’s just they could have come out with something reasonable and then everything could have moved more smoothly. But that’s not what they did.”
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