U.K. marketers are keenly anticipating — and debating — all the uncharted prospects inspired by the Nov. 3 release of Netflix’s less expensive and potentially game-changing ad-tier model.
As the streaming service makes substantial changes to its infrastructure and embeds advertising into its strategy — having recently registered with U.K. ratings measurement agency BARB — these adjustments suggest a more upfront approach in how it will conduct business. But will the addition of ads threaten the streamer’s competency in an already over-saturated market? And how will the move impact its ratings?
Advertisers: Treat Netflix like the big screen
“With ad budgets impacted by inflation and the U.K. navigating challenging political and economic times, it’s a complex moment for Netflix to launch its ad product,” says David Muldoon VP, strategic advisory at Medialink. “But advertisers’ interest is palpable.”
Netflix’s expansion into advertising promises marketable opportunities as it offers audience segmentation according to genre, geography and viewing preferences. The service says it will run four minutes of advertising per hour of content, with limits on how often ads appear. Film ads will be delivered in a pre-roll format of 15-30 seconds and be relevant to the accompanying creative.
“This ad-funded experience could become an irritation,” says Dan Hulse, CSO at creative agency St. Luke’s. “But maybe that’s what they want — to force people to pay to make the ads go away? The smart alternative is to learn from cinema. Brands creating ads for the big screen know they contribute to the overall experience.”
Netflix’s dedicated U.K. audience almost matches terrestrial figures, making it a desirable space for advertisers to tap into. “Brands have been keen on Netflix’s audience and user experience for years,” adds Muldoon. “From leaning into burgeoning content consumption trends to establishing an unmatched international reach through locally created content, Netflix has built a premium customer experience and audience which is attractive in an era of unprecedented content abundance and attention scarcity.”
But translating that attention without spoiling it with ads will require careful treading. Marketers should be hyper-aware of viewing habits in order to serve relevant content that upholds Netflix’s creative standards – and ensure that marketing efforts don’t disgruntle users accustomed to ad-free.
“Under the cost of living crisis, this model is a welcome alternative for those looking to shave costs, without sacrificing life’s little pleasures,” says Alex Wilson, executive creative director at Amplify. “Older audiences are more patient of ads due to growing up with broadcast television so it’s unlikely to alienate them as much as younger demographics. But the lower price point will help.”
Ultimately, Netflix will need to err on the side of caution with the ads it features given the persistent prowess of advertising and how quickly it turns off online users. “Creative advertisers will be more successful with the ad format offered by Netflix,” says Brian Williamson, senior strategist at AMV BBDO. “Netflix understands the value of its audience’s time, and won’t subject them to cheap, repetitive video spam. If the future of streaming ads is more like cinema than web pop-ups, it’s a win for everyone.”
Wilson agrees, citing Netflix CEO Ted Sarandos’ Cannes 2022 talk where the executive discussed creating bespoke ads for Netflix content: “The creative opportunities for the industry will be built around IPs…Think retro ‘80s-style ads ahead of ‘Stranger Things,’ a send-up of sketchy lawyer ads ahead of ‘Better Call Saul’ or a beer brand shot in Paddy’s Pub ahead of ‘It’s Always Sunny in Philadelphia.’”
Is now the time to invest in advertising?
Given the reported $20 million minimum ad spend per slot, Netflix needs to prove its worth.
“Some second-rate ad buyers will say Netflix is charging too much, but viewers and creative advertisers understand these costs,” says Williamson. “You get what you pay for: An audience of real people who actually pay attention for 15 to 30 seconds. Good advertisers know how to turn that attention into gold; real audiences of real people paying real attention are harder to find than ever.”
The intentionally high price tag will attract commitment from fewer key players, but it will put pressure on Netflix to get the ad model right from the get-go.
And yet brands are turning away from spending big money on ads, warns Heide Cohu, founder and CEO of Studio of Art & Commerce. “It’s proven to be less effective and marketers want to engage consumers in alternate ways,” says Cohu.
“Innovative brands like Red Bull are increasingly developing entertaining creative ideas for TV and entertainment formats and they can share the production and distribution costs with platforms like Netflix,” explains Cohu. “Consumers are less tolerant of brands spending big on advertising. Ad-free is attractive and there’s a danger that consumers will choose other such platforms. once they’ve tasted it, it’s hard to turn back.”
Netflix will scrupulously assess subscribership and retention figures with the ad-tier rollout because, as Williamson says, “they’ll be worried about subscribers opting for the cheaper tier and will consider how ads affect average viewing time.”
However, those aren’t not the only metrics to consider. “Revenue and cash flow are obvious key focuses as Netflix makes the shift into an ad-supported model,” adds Wilson. “There was a lot of attention on their lost subscribers earlier this year, but they had a massive increase in Q3, so the focus has switched.”
Interest is now on how well the streamer can pivot to provide ad content catered to its shows and whether it can be trusted to create a safe environment for advertisers. It’s unclear what risk assessment Netflix is undertaking to safeguard controversial content and how it’s navigating diverse advertising contexts, but Muldoon reassures: “As a new player in the ad provider ecosystem, they shouldn’t be underestimated. Their entrance into the space offers more competition in the marketplace, which will stimulate more demand for media investment in CTV [connected TV] and accelerate the industry’s transition from linear to digital.”
