Over the past decade, Netflix has been at the forefront of the streaming revolution, most notably for its perk trifecta of full-season TV drops, binge-worthy original series, and ad-free access to 17k+ titles—and counting.
But a new age is on the horizon for the streaming giant—one that’s both redefining the user experience and piquing the attention of eager digital marketers.
With the launch of its first-ever ad-supported model, Netflix is making monumental moves in the OTT space that advertisers have long been waiting for. If media buying with Netflix is on the books for 2023, here’s what you need to know about adding this new marketing channel to your digital advertising strategy.
Netflix Announces Its Plan to Win Advertisers
In April 2022, Netflix executives announced what they had in store for the OTT provider’s near future: new, low-priced ad-supported tiers. Sending shock waves across the media, Netflix’s revamped business plans have since been subject to mixed feelings from both devoted long-term subscribers and curious digital advertisers.
It’s no secret that co-CEO Reed Hastings has always remained adamant about keeping Netflix ad-free. At first glance, ad-free, on-demand streaming has long been the platform’s main competitive edge in today’s land of CTV viewing. But poor Q1 results and a loss of subscribers for the first time in 10+ years have warranted a second look at Netflix’s historical business model—much to the modern advertisers’ advantage.
In July, talks of an ad-supported Netflix hinted at an early 2023 launch. But sooner came faster than expected, with Netflix officially rolling out its new business model in partnership with Microsoft in November 2022.
As Netflix with ads debuts in 12 countries, digital marketers worldwide are still jumping to know the full logistics.
Introducing the New Ad-supported Tier
On November 3rd, Netflix’s Basic With Ads plan officially hit the market, months ahead of its pre-planned release.
Priced at $6.99—30% cheaper than the regular ad-free Basic plan—the new tier features non-skippable commercials averaging four to five minutes per one hour of programming. Advertising opportunities are available in 15- and 30-second increments for pre-roll commercials and those shown throughout the program.
Despite the pre-launch skepticism from some, a promising streaming front may very well be on the horizon for more than just the streaming giant. According to one Hub Entertainment Research study, 57% of U.S. consumers prefer watching ads and paying $4-$5 less for a streaming service versus paying for an ad-free plan with a heftier price tag. What’s more—46% of current Netflix subscribers consider switching to the new Basic With Ads option to save a few extra coins on streaming services each month.
While Netflix pads its revenue and subscribers save on binge-watching this week’s top-rated original, opportunities may also be available for two more parties in the mix: digital advertisers and their clients.
The Logistics of Ad Buying
At launch, Netflix with ads has seen overwhelming interest from marketers and ad-buying agencies worldwide. In fact, according to Netflix’s president of worldwide advertising, Jeremi Gorman, the OTT provider nearly sold out of its ad inventory in time for launch.
Pricing for Netflix ads is a bit more aggressive than other OTT services like Hulu, Amazon, and even Disney+, with a CPM of around $55. However, this price tag is considerably less than what the over-the-top streaming provider first projected at its launch—CPMs in the range of $65-$80.
Targeting & Measuring Capabilities
As of now, Netflix is mostly pitching advertisers on the ability to target ads by country, genre, and the platform’s daily ranking of its top 10 programs. Currently, there is no available third-party segmentation or first-party retargeting. Despite this targeting shortfall, future plans for the ad-supported tier are continuously developing, and Netflix executives have noted a particular interest in adding more specific targeting parameters, such as:
- Time of day
- Content rating
Similarly, measurement and reporting capabilities for Netflix ads are currently limited. Because the platform does not offer any attribution for its ad buys, there’s little ability to measure the impact of in-platform ads. Within its current model, Netflix ad purchases are only tracking one KPI: impressions.
Fortunately, Netflix plans to work with Integral Ad Science and DoubleVerify in Q1 of 2023 to verify traffic and ad impressions. Sometime in 2023, advertisers will also be able to measure their audiences more closely with the Digital Ad Ratings product—afforded by a coming Netflix and Nielsen partnership.
Keeping Up With Industry Standards
With the streaming wars raging, it was only a matter of time before Netflix hopped on the ad train to maintain its long-standing rank as a CTV leader. OTT ads are the new industry standard, and a glimpse at Hulu, Amazon, and Peacock’s successes with ad-supported tiers only solidifies that sentiment.
From a business perspective, an advertising-based video-on-demand (AVOD) model is a brilliant move. In addition to bringing in revenue from regular subscription fees, OTT platforms like Hulu and Amazon also cash in on a paycheck from the digital marketer.
From a marketing perspective, performance TV advertising is the future. Aside from being able to advertise to cord-cutting viewers, ad buying with over-the-top streaming services allows digital marketers to:
- Access a highly engaged audience
- More precisely target their ads
- Obtain more granular data in real-time
- Provide more ad interactivity
But from Netflix’s perspective, joining the television advertising wave was just another way of keeping its relevancy and success in an ever-adapting market.
Netflix Advertising: A Must or Bust?
Netflix projects nearly 40m ad-tier subscribers by the end of 2023. If these expectations come close enough to fruition, digital marketers have the potential to reach their target audience on a massive scale.
As of December 2022, however, the streaming giant has reported a slower-than-anticipated start for Basic With Ads, with data from Antenna revealing it to be Netflix’s least popular plan—accounting for just 9% of subscribers. But the ad-supported option and its programming are still relatively new. Refinements are inevitable and to be expected as time goes on and opportunities to access richer data become readily available.
Because of the slow start, hesitant advertisers are still weighing the pros and cons of ad buying.
While the OTT platform does allow marketers to build brand awareness with entirely new audiences, ad buying with Netflix is limited and more costly than with other providers, and its lack of measurement renders slim trackable results.
However, Netflix does remain in the top numbers in the OTT industry. Its sheer popularity can bring undeniable benefits to a brand looking to reach more viewers, especially when ads are placed alongside top-charting shows.
There are perks and drawbacks to Netflix’s OTT ad-buying opportunities, and as a result, there’s no one-size-fits-all approach to including Netflix in your strategy.
For some, Netflix is a fit when aiming to build brand awareness on a world-renowned platform over an extended period. For others, there are just not enough data-backed developments that have been made to justify funneling a large chunk of an advertising budget into the new plan.
Time will tell the potential of the new ad-supported Netflix. But for now, the digital advertising industry will be watching the streaming giant’s moves—and successes—closely.
Digital Remedy Is Your OTT Marketing Provider
At Digital Remedy, we help our clients keep updated with the latest OTT advertising industry developments so they can stay ahead of ad tech trends—and their competition.
In July 2022, Microsoft was named Netflix’s technology and sales partner to help power its first ad-supported subscription offering. Microsoft recently acquired Xandr, making our DSP for CTV execution the exclusive programmatic partner for Netflix inventory.
As Netflix works out its initial kinks (including notoriously high minimums and minimal available inventory), we are monitoring for updates regarding a more programmatic-friendly buying option.
In the meantime, our team can help you reach other big-name streaming audiences that are just as engaged and ready to get to know your brand.
No matter your digital marketing needs, we’ll work with you to determine the most profitable media buying opportunities that make sense for your business. We bring media buying excellence and unmatched customer service to the table with our fully-managed platforms, AdReady and Flip, helping to eliminate any complexities of executing your performance marketing ideas.
Speak with a member of our team to learn more about over-the-top streaming trends and how you can take part in optimizing your campaigns with connected TV marketing.