PvNew | Internet Celebrity Wiki

Behind Netflix and Disney+’s Dash for Streaming Ad Cash

  2024-03-05 varietyTodd Spangler36250
Introduction

Just over three years ago, Netflix unequivocally shot down the idea that it would ever roll out an ad-supported streamin

Behind Netflix and Disney+’s Dash for Streaming Ad Cash

Just over three years ago, Netflix unequivocally shot down the idea that it would ever roll out an ad-supported streaming service.

“When you read speculation that we are moving into selling advertising, be confident that this is false,” the streamer said in its second-quarter 2019 investor letter. “We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.”

Clearly, Netflix’s thinking about advertising has changed. Both Netflix and Disney+ are launching ad-based tiers this fall, seeking to broaden their addressable markets and tap into a new revenue stream as subscriber growth has slowed — in Netflix’s case, it lost 1.2 million in the first half of 2022, compared with a net gain of 5.5 million in the prior-year period.

The move to let “consumers who would like to have a lower price and are advertising-tolerant get what they want makes a lot of sense,” Netflix chief Reed Hastings told investors in April in explaining his about-face.

The ad industry has cheered the moves by the two streamers. “It’s going to be the most new inventory for TV content ever introduced at one time,” says Ashwin Navin, CEO of Samba TV, a television and streaming viewing measurement firm. “These companies collectively represent a massive amount of premium video that until now has been off the market [for advertisers]. It’s a watershed moment.”

Netflix’s Basic With Ads, priced at $6.99 a month, begins Nov. 3 in the U.S. and 11 other markets. Disney+ bows its ad-supported plan at $7.99 a month on Dec. 8.

For Q3, Netflix returned to positive subscriber growth, netting 2.4 million new subs, and projected a gain of 4.5 million in the fourth quarter (which is the last time the company will provide that guidance). In its letter to shareholders, Netflix tried to set expectations: “While we’re very optimistic about our new advertising business, we don’t expect a material contribution in Q4’22.” But it’s a massive opportunity: Netflix and Disney+ stand to capture an estimated $2.7 billion and $1.9 billion, respectively, in annual connected-TV advertising by 2026 in the U.S. alone, together representing about 15% share of the market, according to a Morgan Stanley forecast.

Netflix and Disney+ were initially reluctant to introduce advertising due to concerns it would be a turnoff to monthly paying customers. Here are four reasons they balked — and why both are now banking on lower-cost tiers to keep subscriber growth healthy.

Purity of the Streaming Experience

Netflix and Disney execs believed, rightly, that a subscription VOD service without ads is more appealing to consumers — and the thinking was that advertising would somehow sully that premium-entertainment promise. But copious research shows many consumers are willing to trade their attention for a price break. For example, 39% of people who don’t have Netflix said they would consider signing up for an ad-supported option, while 26% of those without Disney+ said the same, per a September 2022 survey by research firm Disqo.

With the new ad options, the companies could win back subs who dropped and retain those teetering on the edge of canceling. “There’s been an underestimation of the tolerance for ads in streaming services,” says Jon Giegengack, principal at Hub Entertainment Research.

Need to Share Data With Third Parties

Netflix has been famously stingy with divulging data, seeing that information as a competitive advantage for making decisions about content acquisitions and curation. Now Netflix, along with Disney+, will be forced to reveal more granular data to advertisers about audiences and viewing habits on their platforms. (Netflix says its measurement deal with Nielsen will kick in next year.) But that’s the cost of doing business, and it’s worth noting the ad measurement will encompass only a portion of total usage.

The new services also will be subject to government regulations governing the privacy of personal user data. Hastings, in announcing Netflix’s ad plans, downplayed potential privacy risks: “We can be a straight publisher and have other people do all of the fancy ad-matching and integrate all the data about people.”

Additional Cost and Complexity

Unlike Disney, Netflix had no history in the ad biz, and adding that capability has required coordinating a bunch of moving pieces — and making new investments. The streamer is renegotiating licensing deals to get ad rights from content partners, but out of the gate will have to exclude 5%-10% of titles (depending on the country).

To get to market fast, Netflix chose to partner on ad sales and tech with Microsoft, which completed its acquisition of AT&T’s Xandr digital advertising unit in June. Netflix also hired two ad-industry veterans to lead the charge: Jeremi Gorman and Peter Naylor, both most recently with Snap. “They have a great team of experts in place — they know what they’re doing,” says Mark Melvin, exec VP of the Americas for Mirriad, which sells in-content sponsorships. “I’m confident Netflix will figure it out.”

Risk of Cannibalizing Higher-Priced Tiers

“As you drag existing business models along, there’s always the existential dread of trading dollars for pennies,” says Blair Harrison, founder and CEO of cloud-based linear streaming platform Frequency. Disney and Netflix execs have expressed confidence they’ve calibrated their ad-tier launch plans to mitigate cannibalization risk, so that it doesn’t matter which plan customers choose. Moreover, the companies have suggested there may be upside on the ad-supported tiers if they can fetch premium ad rates. While some ad buyers are skeptical Netflix is getting in the range of the $65 CPM (cost per thousand impressions) it floated to ad buyers in August, other industry observers say that’s not out of the question. “Netflix may be late to the game,” says Mark DiMassimo, founder and creative chief of ad agency DiGo, “but their game has been pretty darn good.”

Disney has an additional motive for stitching ads into its flagship streamer. It needed to level up Disney+’s price point after it originally lowballed the service in a bid to rapidly acquire subscribers. As CEO Bob Chapek conceded at a Goldman Sachs conference last month, Disney+’s $6.99 price point when it launched in November 2019 was “pretty absurd.” The no-ads version of Disney+ will jump from $7.99 a month to $10.99, while Disney+ with ads will be available for $7.99.

The winners from all of this are consumers — who will have lower-cost options as inflation continues to plague their pocketbooks — as well as marketers hungry to reach cord cutters. The losers? Old-fashioned cable and broadcast TV networks, which will see more Madison Avenue money move to the connected-TV streaming world.

As Samba TV’s Navin puts it: “The fortress that is linear television is cracking at the foundation.”

Pictured above: Millie Bobby Brown as Eleven in “Stranger Things 4”

VIP+ Analysis: Why the Future of Streaming Is in Advertising

(By/Todd Spangler)
 
 
Dislike 0 Report 0 Favorite 0 Awards 0 Comments 0
0 itemsRelated comments
 

(c)2019-2024 PvNew All Rights Reserved |