global-audience-netflix-advertising

Reaching a global audience with Netflix Advertising

Four days after I wrote about the bull case for TV advertising in 2022, the BBC published an article entitled ‘Households cancel streaming services to cut costs’. Humble-bragging aside, are the Beeb reading the element26 blog?

Netflix’s Q1 results were announced the following day which made for some glib reading for investors. In case you missed it, here are the headlines. Netflix lost 200k subscribers in Q1, set against a prediction of adding a further 2.5 million subscribers. They went on to predict a churn of a further 2 million subscribers in Q2. 

The news of the first subscriber loss in over a decade sent investors into cartwheels, shares dropped by 20% in after-hours trading, wiping $54B off the companies valuation. Seemingly the biggest one-day stock drop ever. 

The company blamed the poor performance on password sharing, the war in Ukraine and competition in the market place. Commentary on the internet went wild. I particularly enjoyed this post by Erick Opeka on Linkedin, which does a good job of questioning our entitlement to content glut. 

Netflix announced they would be investigating measures to limit password sharing and shock-horror, revealed they would likely be introducing an ad-supported tier within the next two years. Later the same week, HBO announced that they added a further 3 million subscribers, bringing their total subscriber base to 76.8 million worldwide. 

Whilst Netflix once championed password sharing as as part of it’s growth strategy, it’s indicative to me that the announcement of ad-supported tiers means Netflix knows it’s reached saturation point. There is some evidence that Netflix knew this was coming, announcing in their Q3 2021 shareholders letter, their intention to measure time spent on the site as a key performance indicator. Time spent is critical, as Netflix begins to value the space for ad inventory. 

So, what will Netflix with ads look like?

A downgraded tier of Netflix with ad-support has been described by Tom Goodwin, as the biggest opportunity ever in advertising.

However, whilst audience opinions on advertising appear to be softening, many remain unconvinced that advertising won’t be disruptive to their viewing experience. 

The best thing Netflix could do here, would be to think differently about how advertising could work for the good of both consumers and brands. Whilst TV advertising has evolved from a linear model to an addressable one but in both scenarios, tv advertising has largely been a passive experience.

A new advertising format unique to Netflix has the opportunity to redefine what it means to advertise in the home; imagine a scenario where Netflix ads encourage the user to interact on their mobile device – this could change the meaning of second-screening. 

In Tom’s article in The Drum, “we need to stop media being so cheap that players don’t value and respect the attention of the viewers and move to maintain production values”. This last part is critical when you appreciate TV has always been a premium environment. 

Finally anyone getting excited about this being a self-serve platform like Facebook or Instagram, should probably adjust their expectations. TV is and will always be a regulated space and I don’t trust either the ability of your average Joe to step up to the plate to deal the nuances of Clearcast, or for the various regulators to handle the increased levels of inbound enquiries a self-serve model would undoubtedly create.

If AdSmart serves as any frame of reference, Netflix will have a plethora of first-party date to bring to market. It will be interesting to see how they build on top of this to create more addressable audience but in any event, with circa 200 million users, TV advertising is about to get global. 

In case you can’t tell, we’re pretty excited about this development and hope to be amongst the first to market, to bring our clients to Netflix once the service is finally launched. In the meantime, you can watch the full Q1 2022 results call here:

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