Ads on Netflix? What this means for advertisers

Netflix’s Q1 earnings call sounded much different this year than five years ago. Once they were only “competing with sleep,” Netflix faces a subscriber loss for the first time in its history, and its stock has taken a colossal hit. To recover, Reed Hastings – for the first time – is open to an ad-supported model. It’s undoubtedly the outlier in the space by not already offering one, but given their apprehension in the past, I don’t expect it to look like everyone else’s. At least not right away.

While I anticipate Netflix will only sell direct in the early days, I hope they’ll see the value in programmatic and specifically, a more open programmatic ecosystem as opposed to building their walled garden. And while I don’t think it will happen at first, given the breadth of the Netflix library, there’s a ton of potential to bring ads to it all and allow advertisers to take an audience-first approach.

There are going to be two types of advertisers: The ones that are chomping at the bit to advertise on Netflix no matter the cost (and are going to be hyper-focused on being aligned with ‘watercooler-esque’ content) and a more performance-oriented advertiser that cares about getting in front of the right viewer and getting them to take action, whether they’re watching Squid Games or a documentary about kayaking (speaking of which, I do suggest The River Runner!). This second type of advertiser is one of the key reasons AVOD services like Tubi and Pluto have seen such growth over the last few years.

There will always be a group of advertisers that don’t care about measurable performance. However, given the high CPM I expect Netflix to carry, brands will need the measurement to justify that cost. This is something Hulu has done well. In most of our campaigns, Hulu carries a CPM premium of 20-25%, but because we’re tracking hard metrics like site visits and sales for our brands across an array of streaming services, we can clearly see the high CPM on Hulu is worth it in most cases.

Aside from purely the performance benefits, programmatic CTV buying is important because not only is the modern consumer not huddling around the TV during primetime, they’re not even all watching the same Netflix shows. CTV caters to all sorts of interests and allows people to explore the long tail of premium content. And so as an advertiser, you want to be able to reach that same consumer across all the streaming services they use, knowing that they’ll be jumping across multiple platforms to find the show they want and churning through ad-supported services when they finish a show they love. This is normal consumer behavior at this point, so a static approach to buying CTV just doesn’t cut it.

As more and more advertisers lean into CTV advertising in this way and Netflix seeks to generate more revenue from a subscriber base that remains flat at best, I expect Netflix will see the opportunity to open up its inventory programmatically after a successful, albeit limited, foray into the ad-supported model.