Hot Takes: Netflix Has Advertising. Now What?

Netflix unsurprisingly announced that they would actually be introducing an ad-supported subscription model (SAVOD) at some point in the foreseeable future. I say “unsurprisingly” because if your goal is Total World Domination, you’ve got to ensure your product is priced in a way that most of the world (that part outside of the U.S. and Europe) can afford it.

We asked our Thought Leaders Circle members for some thoughts on what an ad-supported Netflix offering might look like, what decisions they’d need to make as they enter the ad market for the first time, and what their companies might do to help.

The responses were, as you might expect, as varied as our members.

First up was Adam Helfgott, CEO at MadHive, who looked at the ways in which Netflix might handle all of the first party data they’ve been collecting over the past decade.

Multitiered SVOD and AVOD offerings are emerging as a recipe for success in streaming content, especially at a time when inflation is at its highest rate in decades. Netflix already has a trove of first-party data that can deliver a variety of audience segments for advertisers, and relevance for consumers. There's a good chance they do it all by hand like Amazon, so they don’t allow co-mingling of their data and then they don’t need to integrate with anyone. But in order to sell that inventory in context with TV overall for advertiser objectives, they will need to integrate into the ecosystem and partner with DSPs, SSPs, and infrastructure providers.

Raf Bagdasarian, Paket Media's founder, focused on what happens when the bloom is off the rose and Netflix’s ad business is just yet another streaming service offering.

Netflix should be thinking as much—possibly more so—about what happens once their ad business reaches a steady state. While I’m sure they’ve been working on their ad strategy for a while, the shift seems more a reaction than a proactive strategic decision. It’ll be (relatively) easy to sell top-tier ad inventory at a premium while the hype is fresh, so they should begin thinking today about how to disrupt their ad business tomorrow, even though they’ve yet to launch it.

Stu Schwartzapfel, SVP of Media Partnerships at iSpot considered how Netflix’s massive store of consumer data could provide brands with the opportunity to create advertising that fits more seamlessly with the content.

Netflix changing course to start embracing TV advertising is a smart shift for their business, and one that has the potential to be both lucrative for the service and immensely valuable for brands. With its ability to tap into consumer entertainment preferences, Netflix provides an enormous opportunity for brands to tailor advertising in a focused way with significant business impact.

Nick Cicero, Vice President of Strategy at Conviva looked at the important question of how Netflix’s advertising would be measured. (Look for Nick’s full take on Netflix’s pivot later this week.)

It’s time for Alternative currencies to shine - When Netflix rolls out ad-supported content, I find it hard to believe they would stake their claim in the ad-supported world by working with traditional methodologies like Nielsen, especially as a company traditionally that has historically been close-lipped about their data. Companies like Conviva, iSpot.tv, and VideoAmp will continue to thrive in this new world.

Field Garthwaite, CEO & Co-Founder of IRIS.TV, spoke about the effect a poor ad experience can have on overall user experience and stressed the importance of Netflix delivering contextually relevant ads while guarding against over-frequency, something his company’s latest offerings can help with.

As Netflix embarks upon a potential entrance into AVOD, they must make sure they get both the user experience and, by default, the advertiser experience right. CTV advertising is riddled with poor user experiences, often defined by poor ad experiences. Because of the lack of access to video-level data, ads repeat too often, ads are not targeted to the viewer, and, worst of all, inappropriate ads are shown at inopportune times. We, as viewers, have all experienced these things, too many times. Netflix must maintain its brand equity during the course of any new excursion into advertising and nothing will be more important than preserving the user experience and mitigating these issues.

IRIS.TV is solving for these poor user CTV viewer experiences by providing universal video data connectivity across the advertising industry. As a result, advertisers know what viewers are watching and can target their ads and their experience accordingly. Ad frequency, targeting, and adjacencies all dramatically improve as a result. Netflix must launch with access to their video-level data to ensure an optimal user, and advertising, experience

Kate Ginsburg, Head of Content & Product Marketing at Tubular Labs focused on how valuable Netflix would be for advertisers looking to reach the hard-to-reach 18-34 year old demographic.

Introducing an ad-supported model is a strategic move for Netflix, and one that provides opportunities for marketers to engage with a highly sought after and engaged audience, said . Social video data shows that Netflix is a top-20 media company by U.S. population reach among 18-to-34 year-olds. This move allows them to leverage that strength with brands that are anxious to get messaging in front of those consumers.

Akhil Parekh, SVP Product Management at Mediaocean considered what Netflix would need to do in order to make a global ad business feasible, speculating that they may need to purchase an OEM or a DSP to jump start the process.

Netflix has a tight relationship with their user base with access to first-party data about their content consumptions habits. Making program recommendations based on that information is not new for them. However,  to offer advertising in the Connected TV ecosystem isn't without its challenges. Netflix will need to build or buy an ad stack that is truly scalable across their global footprint which may present a strong M&A opportunity for Netflix. We speculatively think it could consider buying an OEM with strong CTV focus or a DSP. Regardless of their approach, Mediaocean would remain a critical integration for Netflix, as Mediaocean's platform enables agencies to buy, transact, pace, and invoice against media sold. In addition, Netflix could also be connected to Mediaocean to directly tap into the demand from agency buyers.

Bob Ivins, Chief Strategy Officer at TVSquared by Innovid

Netflix’s decision to enter the ad-supported streaming arena confirms that advertising needs to support the development and distribution of premium content. These AVODs are proving to be a major ‘win’ for all sides of the industry: (1) publishers (get additional revenue to help support growth, (2) consumers (have a more cost-effective way to watch content), (3) advertisers (gain more opportunities to find and connect with audiences they’d never find through traditional mediums like linear TV alone) and (4) measurement providers (powering the buy- and sell-sides with the data insights needed to maximize cross-platform TV investments). To thrive in an increasingly crowded space, Netflix needs a company to accurately measure and attribute CTV/OTT advertising in real time, across the globe. I’ll be waiting for their call!

Our TVREV take is that the launch of a Netflix ad business will be incredibly disruptive to the industry but will provide an opportunity to fix many of the issues that currently afflicts CTV advertising, everything from transparency to overfrequency to data privacy to contextual relevance to scale.

A key driver in this is that Netflix’s advertising program should prove to be incredibly popular with brands, far more than is likely warranted, TBH, because of the prestige that will be associated with it. The chance to reach an audience that is often unreachable on TV will be another.

Our main piece of advice to Netflix is to hire wisely for key roles, meaning people who understand the television side of the business as well as the digital side, and who have proven to be visionaries rather than good corporate soldiers.

We would also remind them that if they do need help, TVREV and our esteemed group of Thought Leaders Circle members are always here to help.