Wall Street Loves Netflix, Contextual Is Having A Moment

1. Wall Street Love Netflix

Wall Street has never really quite understood TV’s shift to streaming. To wit, if I had a dollar for every time I heard “but how can Roku sell advertising AND devices?” I’d be writing this on a gold-plated keyboard.

Netflix has largely benefited from this gap. It’s an easy business to understand given they do not, as they snarkily noted on this week’s earnings call, have a legacy linear business to deal with.

Not to mention the fact that their first mover advantage means they get to define the category.

Or, to put it another way, no one is ever going to say “Hulu and chill.”

They are undeniably doing well by most measures and have, to their credit, made many wise moves over the years.

But there are some great big honking question marks that Wall Street tends to gloss over in their rush to drive Netflix’s stock price higher and higher.

Why It Matters

Allow me to take you through two of said question marks.

Subscriber Numbers.  Yes, they are up. Way more than expected. But what’s not clear is how many are “net new” subscribers and how many are Lapsers—people who let their subscriptions go but then re-upped to just watch Squid Game or NFL games.

Equally unclear is how many were former “subscribers” under their college roommate’s aunt’s subscription who are now forced to get subscriptions of their own. Something one might call a “non-renewable resource” or “single use gift.”

Also unclear is what Netflix’s path is in those countries currently known as “The Global South”, there being no executive orders requiring us to call them “Third World countries” again, at least not yet.

Nomenclature and snark aside, the question is quite relevant given that Netflix has planted its flag in every country on earth save China, North Korea and Syria (and I suspect Netflix Syria is coming soon) and so it is rational to ask what their plan is to gain any sort of market share in places like Tajikistan and Burkina Faso, where it is unlikely that all but a sliver of the population has anything resembling disposable income, let alone disposable income for streaming TV services. It would seem that some sort of free ad-supported (FAST) model is required in these countries, but is Netflix ready to go there? And if not, what will they do if much deeper pocketed players like Amazon, Tencent, Alibaba and Google start rolling out their own free services?

See what I did there? A subtle reminder that while Chinese players are pretty much shut out in the West, they are 100% the competition elsewhere.

And this matters because last time I checked, there are far more people living in “elsewhere” than in the West, and if you want to dominate the global TV market, you need to dominate the entire globe, not just a small highly affluent corner of it.

A lesson HBO knows all too well.

Ad-Supported Subscriber Numbers. This is an even bigger issue. Netflix sold itself on the notion that you could watch whatever you want, wherever you want, whenever you want, all without commercials.

For American consumers overwhelmed by interminably long commercial blocks, heavy on execrable pharma ads, the new service was a dream come true and enabled the birth of a new form of viewing known as “binge watching.” 

Bingeing was not just for new series either—plenty of viewers enjoyed bingeing fifteen year old seasons of Law and Order, secure in the knowledge that each “da dum” did not signal a cut to a five minute onslaught of commercials.

Meaning that it is going to be a struggle to get consumers to cotton to the idea of ad-supported Netflix and many will need a reason more compelling than just “save ten dollars a month.”

And yet… Netflix has been proudly trumpeting the growth of their ad-supported subscriber base, noting, for instance, that 55% of their 19 million new global subscribers signed up for the ad-supported tier.

All well and good, but there is no further info on who those subscribers are. Which matters because Netflix offers ad-supported plans in countries where the economic conditions suggest they’d be quite popular, places like Brazil and Mexico. So if 80% of the new sign-ups in those countries chose the ad-supported tier, that would result in significantly lower percentages in countries with higher CPMs like the US and UK.

So there’s that and then there is also the question as to how many of those ad-supported subscribers are just coming in to watch NFL games and other live sporting events.

Because those games are all going to have ads anyway, and if you can get away with paying less, why wouldn’t you? Especially if you plan to drop the service when the season is over.

Ditto people who are just signing up to watch Squid Games or similar. 

Point being, it would be useful to know what the churn rates are on ad-supported subscribers versus ad-free ones.

Because that would give us a much clearer view on what the long-term viability of ad-supported Netflix is.

What You Need To Do About It

If you are Netflix, you need to be a bit more transparent about all those numbers. Because while much of Wall Street and the trade press may swallow your stats unquestioningly, there are many of us who will not, and our assumption has long been that if those numbers were impressive you’d be chomping at the bit to tell us about them. US ad-supported subscriber numbers in particular.

If you are an investor, take a deep breath. Netflix does indeed look to be crushing it right now. But they’re also hoping you don’t poke behind the curtain too hard and ask more difficult questions. Maybe it’s time that you should.

If you are a brand, I’d focus on the live sports opportunities. There are fewer advertisers (for now) and you cannot underestimate the value of a live audience where millions of people are all seeing your spot at the same time. 

Just like the old days.


2. Contextual Is Having A Moment

Remember how last year we did a report on the OS Wars, and then a few months later you started seeing things about the “OS Wars”? Sort of like similar things we’d done with everything from ACR data to FASTs.

Well two months ago, we released a Special Report on contextual targeting called “The Contextual Revolution: Five Companies Rewriting The Rules Of CTV Advertising.” And now everywhere you turn, there’s news about those five companies: Anoki, Wurl, KERV, Gracenote and IRIS.TV. As well as news and “Five Things You Should Know” type articles about contextual in general.

All this braggadocio is leading up to a point, however, which is that Comscore just released a new study called “State of Programmatic 2025” that offers some new stats around what a huge deal contextual targeting has become.

Why It Matters

We can talk about contextual targeting all we want, but until it makes an appearance on the radars of brands and agencies, it’s not really a thing.

And this report indicates that it is indeed a thing, a very big thing, in fact.

  • 41% of marketers identify contextual targeting as their primary strategy for maintaining targeting effectiveness amidst privacy challenges, slightly ahead of first-party data at 40%

  • 54% of marketers plan to increase their use of contextual data in 2025.

  • 19% remain “uncertain” about how they’ll treat contextual targeting which, the report notes, underscores “the need for education and clarity around the value of contextual data.” [emphasis added]

Now funny enough, our report is designed specifically to provide that sort of “education and clarity” around the value of contextual data. That’s because like all our Special Reports, it is meant to be a primer of sorts, a fairly evergreen deep dive that is valuable for everyone from dewy-cheeked newcomers to grizzled old pros. They are, we have been told, particularly effective at reducing the resistance of traditionalists (this week’s euphemism) to any and all new ideas.

What You Need To Do About It

If you are a brand or agency, you need to download the report (it is free thanks to our sponsors) and educate yourself. Even if you are a huge advocate of contextual targeting, I guarantee there will be something in there you did not know..

If you are skeptical of contextual because “we tried that before and it didn’t work” remember that times have changed and assumptions that were valid 10 years ago are no longer valid now.

And if you’re just looking for a TL;DR answer, it’s that contextual targeting solves a whole world of hurt around CTV advertising, everything from privacy to transparency to measurement to reach to data veracity. 

It’s the Swiss Army Knife of ad tech.

If you have not downloaded the report after this compelling sales pitch, just remember it is never too late to embrace the love and wisdom of TVREV.

We’re not a cult.

But we could be.

Alan Wolk

Alan Wolk veteran media analyst, former agency executive, and author of "Over The Top. How The Internet Is (Slowly But Surely) Changing The Television Industry" is Co-Founder and Lead Analyst at TVREV where he helps networks, streamers, agencies, brands and ad tech companies navigate the rapidly shifting media landscape. A widely published columnist, speaker and industry thinker, Wolk has built a following of 300K industry professionals on LinkedIn by speaking plainly and intelligently about TV and the media business. He is also the guy who came up with the term “FAST.”

https://linktr.ee/awolk
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