The Rundown: Five (new) questions to ask about Netflix’s ad-supported plans
Anticipation is growing among media buyers and advertisers as they await the details of Netflix’s plans to incorporate advertising into its streaming platform starting this fourth quarter. A good amount of Netflix’s content is widely regarded as high quality that could fetch strong ad rates in a market that’s looking softer by the day.
The move to incorporate ad sales feels a bit inevitable in a digital-first world. “Advertising is the primary business model of the internet — it’s not subscriptions,” said Rajeev Goel, CEO of PubMatic, a possible SSP partner to Netflix. “The beauty of advertising is that it democratizes the access to content, whether it’s journalism, news, entertainment or sports. It’s clear that ad-funded models are significantly more scalable than subscription models.”
Since Netflix hasn’t revealed the details of its plan yet, several executives Digiday spoke with (all on condition of anonymity) asked a lot of questions surrounding its close-to-the-vest efforts to create what’s seen as an important revenue stream in the face of softening subscriber counts.
And though Digiday’s senior media editor Tim Peterson posed five questions about Netflix back in April, this round of questioning focuses on:
Which ad-tech partner(s) will Netflix choose?
Word is out that the company is likely planning to start off its ad sales efforts on an outsourced and automated basis rather than building a bespoke ad-sales operation in time for a fourth-quarter start. The Trade Desk is most often cited as the most likely partner, and CEO Jeff Green recently declared on an earnings call: “We’ve had a great relationship with Netflix because of [David Wells, who was the CFO of Netflix, but joined The Trade Desk’s board almost five years ago]. And I’m extremely optimistic in the potential for us to partner with Netflix.”
But Netflix will need an SSP to bring its ad opportunities to market, and Comcast’s Freewheel and Google have been mentioned by sources with some knowledge of Netflix’s plans. One media executive familiar with Netflix hinted at Amazon being a possible partner, saying “maybe a surprise in Seattle.”
Netflix is expected to select its partner(s) within the next two weeks, said one source with knowledge of its plans.
Will there even be an ad sales chief?
Two executives with knowledge of Netflix’s plans — at this point, as the company is notorious for changing its mind many times before it commits to a direction — said it’s unlikely the streamer will tap one of the high-level execs whose names have been bandied about, including ex-Facebook ad sales head Carolyn Everson, ex-Hulu sales chief and current vp of sales at Snap Peter Naylor, Google vp and gm Tara Walpert Levy and others. At least not this year.
One chief investment officer at a major holding company noted that there’s just not enough time to bring in a new head of ad sales as well as the engineering smarts in time to launch ads in fourth quarter.
What will the ad-supported tier look like?
At this point, it looks as if Netflix will offer something like a $5.99 monthly sub option that carries ads, although it’s been reported that the spots will not interrupt programming, they’ll run as pre- or post-content spots. The executive with knowledge of the company’s plans said Netflix is considering testing out such a plan, possibly in an international market without the same glare of attention it would draw in a market like the U.S.
Though he wasn’t addressing what the above executive said, PubMatic’s Goel talked about Netflix’s global ambitions, which could influence how its ad strategy plays out. “When you look at developing markets like India or Indonesia where there are almost 2 billion people between those two countries who have significantly less disposable income than the average person in the U.K. or the U.S., their ability to pay for subscription content is far lower. It really opens up the content model to many more users if you have an ad supported model.”
How much data will Netflix share?
The company already has a reputation for being extremely guarded with its data, rarely revealing any insights on how well its higher-profile programming has fared. Naturally, media agency executives wonder what degree of data it will share once they’re buying ads on the platform?
“They really don’t like sharing data, so how are they going to share data with whoever their partner is? Because [the partner] is going to [need to] know a lot about what’s going on in there,” said one media agency executive, who also wondered how deals will be structured. “That’s a tough one, are [advertisers] just paying X amount of money to be part of Stranger Things? I don’t know who’s gonna do that in this world.”
Long-tail or high-brow?
CEO Reed Hastings is known to attack problems from an engineering point of view, which could lead to Netflix offering deep-diving addressable ad opportunities. But the streamer also has a lot of programming, like Bridgerton or Stranger Things that could attract high ad rates given their popularity.
“Will I be able to target someone watching that seventh serial-killer documentary, and go all addressable?” asked the media agency exec. “Or are they going to do a more Hulu style approach with the top-tier programming they spend money on?” The exec believes Netflix will lean toward the latter.
Seb Joseph, Digiday senior news editor, contributed to this story.
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