Netflix ads: pay TV, or something new entirely?

Netflix has profoundly impacted viewing behaviour in the past few years, essentially birthing a generation of zombie TV bingers and challenging the weekly episodic experience TV networks had pioneered for decades.

But I’m interested to understand the impact it can have on the ad industry. Spoiler alert: it’s huge, if they get the model right.

The setup

To get ads I had to set up a new account. Netflix hasn’t been peppering users with messaging about downgrading their accounts for obvious reasons and as a fan of the finer things in life I naturally have the 4K enabled account.

However this means I’m a ‘new’ user in their eyes – so all the promise of Netflix using first party data to target in this situation doesn’t really apply. Though, by my estimation Netflix are targeting new sign ups, so this will be an interesting caveat as targeting capabilities are going to be a little more limited than you may expect.

The other thing to note is that this $6.99 tier only supports the lowest resolution playback, so this isn’t aimed at fidelity junkies at the moment. For most existing customers it won’t make a difference, but it’ll be interesting to see if they roll out discounts for ads on higher subscription tiers down the track to make them accessible.

It’s also important to note this tier doesn’t include the full Netflix programming suite because of rights issues. But all the Netflix originals you know and love are there.

What did I see?

I’m currently working my way through The Sandman, a Netflix original with insane production values. And I had watched two pre-roll ads before I even realised it. That’s not a bad thing, I was paying attention, but the ads didn’t feel jarring in the context. It was more a natural thing. Perhaps we’re conditioned to seeing ads before content, so I didn’t resent them being there.

However, I did take in the brands, AAMI and Specsavers. They’re big, national TV advertisers, so it’s not surprising to see them on what has been touted as the most expensive media on earth.

Importantly, it didn’t feel like the ads were targeted to me. As far as I could tell this was their TV creative, not something bespoke for the platform. This isn’t a surprise as it’s a more TV-like experience than say, YouTube.

Subsequently Audible, NBN, Spotlight, Target and Nutrigrain ads have all been shown to me. I might have been trying to watch ads…

I skipped to the second episode (realising I’d watched the first) and it showed me these same ads again as pre-roll. But then I fast-forwarded through the episode and it didn’t do what many BVOD services do and stop me and make me watch more ads in the middle of the programming. Again that is a nice touch for viewers – I’m sure it’ll change over time though as mid-roll slots start to sell. It’s unlikely you’ll be able to have 40 minutes of content only seeing pre-rolls.

As I mentioned, The Sandman has incredible production quality – it struck me that advertisers would need to match that environment. This is no place for your run of the mill native digital video ads. It is a premium environment.

So perhaps what we’re seeing here is the next wind in the sails for production value and craft – a chance for creative agencies to encourage brands to think big again. It may also be the kick in the pants that the Connected TV experience needed to be taken seriously by media and creative agencies alike.

Importantly the experience wasn’t glitchy in any way – there weren’t big buffers or pauses as ads loaded. It’s not ruining a streamlined experience. Ads paused when I switched tabs in browser, so viewability has been considered and a logged-in experience means fraud should be low.

But so far, it’s just like linear TV, but with far fewer ads. Maybe we could call it… Pay TV? Maybe not.

This all seems pretty familiar, are there actually any breakthroughs?

To my mind, there are huge potential implications but they need a broader perspective.

Creatively my mind goes straight to brand integration and product placement. After all, Netflix is a content streaming platform as well as a production business. Its advantage over local broadcasters is its sheer scale and global reach.

Netflix has already got Stranger Things merchandising locked down – think Casio watches and Peter Alexander pyjamas.

But if I’m Coca Cola and I can get a moment where someone puts a can down on screen, and I’ve got a targeted midroll with Stranger Things elements around that, and then I have related packaging in stores and across other media, that’s massive. It’s a hugely compelling integration point into a cultural phenomenon.

This is the new bit because that level of orchestration has been inaccessible while Netflix was a gated space for advertisers.

You might ask: ‘Tim, what’s the difference with that and Coles integrating into Masterchef?’ I’d say, ‘Great question, but watch your tone’. The difference is scale – Netflix is a global property, so if Coke’s marketing team in Atlanta decide to do this it would have a cascade of second order effects for the many local markets.

Suddenly media buys, creative executions etc. are taken from the hands of local teams and centralised around a cultural moment, which can last in perpetuity as the content stays up. In recessionary times I do wonder how many global businesses might eye this kind of thing as a hugely efficient means of making budgets go further.

There’s also a conundrum for Netflix as to how deep it goes with targeting. Media signalling theory says advertisers should buy certain mediums not for maximum efficiency, but for the implicit statement about the brand – we’re big and successful and everyone needs to see our ad.

TV is the best example at the moment, but Netflix could have that effect. But if they go too granular with targeting and slice and dice audiences, or try to add too much of a digital ad experience with click to buy, that could spoil the premium feel and reduce the impact on consumers’ perception of advertisers.

The effect on Netflix – and will it work?

This is a great move from Netflix in terms of targeting medium and light users. Making a value product that allows people who don’t want to spend a shit tonne on streaming and can have another service at minimal expense is great. That’s the growth mentality.

I don’t necessarily think that they will make money from these ads – at least from ad revenue – but what they will do is drive their total penetration and give their business strategy new ways of going to market. This is especially relevant if they clamp down on account sharing, forcing the sharers to get their own subscriptions to the service.

And as recession looms large in the minds of consumers. People will try to save money from not going out, but will spend more on entertainment at home. So opening up a cut-price way at this point in time makes complete sense.

For a company that had been in decline with subscribers and facing a sharp share price drop, it’s a really smart move that’s been reflected in a slight rally on its stock price in recent days after some good quarterly results.

That’s important to access cheaper capital to fund the production of new content – the trick as ever is to feed the beast and keep producing things audiences, and now advertisers, will want to watch (or be next to).

It’s a fascinating experiment but it’s actually not a big gamble for Netflix or advertisers. Even if they’ve signed on at higher CPMs it’s not like buying against a big show on linear TV because you know you’ll only pay for the impressions that are actually delivered. It’s unlikely Netflix will be delivering makegoods against underperforming shows.

This is all based on what I have seen in a few hours with the product. It’ll evolve and shift, I might even be wrong. But as a media-minded creative strategist this opportunity has me absolutely buzzing about the opportunities for clients.

It’s been a busy morning. I’m off to the couch to Netflix, chill and devour some lovely ads.

Tim Collier, head of integrated strategy and planning, Connecting Plots

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topics ad iter ad-supported plans Advertising comment Connecting Plots Netflix op-ed opinion SVOD Tim Collier

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Comments: 1

Anonymous 9 Nov 22

Great insightful article.

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