Hot Takes: Will Netflix Need To Start Running Advertising?

Is Netflix going to start running ads? Should they?

This question has been one of the longest running debates in the industry, with strongly held beliefs on both sides.

Given Disney’s recent decision to launch an ad supported version of their Disney+ app, we thought we’d see what our TVREV Thought Leaders Circle members were thinking.

Alexandra Klausner, Product Marketing at Conviva spoke about the likelihood that Netflix would need to include advertising, but not necessarily traditional ad formats, as well as their need for a continuous measurement solution to monitor it all.

That Netflix is considering advertising shouldn’t come as a surprise. The company has struggled with subscriber growth over the last year as it reached close to the total addressable market with its existing offering. Opening the door to a lower cost, ad-supported tier can help Netflix expand their user base globally.

Netflix has already done a lot of integrated marketing in original series, and leveraged their popular social channels for sponsored posts globally. I expect to see Netflix continue to experiment with non-traditional ad formats. As premium services like HBOMax, Netflix and Disney+ dip their toes into advertising, it’s more important than ever that they leverage a continuous measurement solution to monitor viewer behavior and engagement so they can make data driven decisions that reduce the chance of alienate existing users, hurting their brands and build advertiser trust in new types of ad products.

Richard Pacheco, Mediaocean’s SVP Strategic Partnerships also felt that advertising models were inevitable in premium video and noted that the lower prices of ad-supported apps ultimately work to consumers’ benefit.

It’s become clear that the future of premium media will be a balance of both subscription and advertising models. Particularly in an uncertain economic environment, this outcome delivers many benefits for consumers, advertisers and the platforms themselves. Consumers get more control in terms of expenses, and advertisers are able to more granularly reach large audiences in premium video environments. Streaming platforms like Netflix can unleash incremental revenue streams which are critical to support their valuations as the market matures. Recently, Netflix has given hints that it is moving away from its “no advertising” stance which is a nod to the momentum of these realities.

Stuart Schwartzapfel, Senior Vice President, Media Partnerships at iSpot.tv. pointed to Netflix’s treasure trove of viewer data as something that would allow them to take a more targeted and thus viewer-friendly approach to advertising.

Ad-supported TV is still alive and well, and it would stand to reason that every streaming service -- including Netflix -- would want to embrace an AVOD tier at some point, especially as subscription price becomes a bigger point of emphasis. Given the audience data at Netflix’s disposal, the service can take a smart and targeted approach toward ads that aligns with its content strategy, and avoids taking away from the viewing experience consumers are accustomed to.”

Our TVREV take is that Netflix will indeed need to roll out ad-supported models, but the form that takes will vary from region to region.

Meaning that in emerging economies in places like Africa and parts of Asia, Netflix may go with more traditional ad units and rely primarily on a FAST model or very low priced AVOD model as few people will be able to afford a higher-priced subscription model.

In the U.S., Europe and other affluent countries, if there is an ad-supported mode, it will likely be less traditional and involve sponsorships and/or pre-roll and post-roll ads, rather than a traditional ad load. (And we’d ad that current management will fight transitioning to any sort of ad-supported model for as long as possible, especially in the U.S.)

Netflix’s access to viewer data as well as their premium reputation will make it easy for them to sign up advertisers across all regions, while charging high enough CPMs to keep the ad loads low.