Not having commercials during its programming has been a hallmark of Netflix’s corporate image as a disruptive force in TV. Even as the company moved ever closer to the broadcasting ideal of offering something for everyone, it resisted — or even scoffed at — the idea of bringing in ads.
But after the release of a rough quarterly earnings report on April 19, in which Netflix had its first net loss of subscribers in more than a decade, co-CEO Reed Hastings said the streamer would launch a less expensive, ad-supported subscription tier in the next couple of years. A company used to leading the streaming space will now be playing catchup in the advertising-based video on-demand (AVOD) field, as nearly all of Netflix’s major competitors either already have ad-supported streaming options or announced plans for them.
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Advertisers have been eager to get into business with Netflix for years, and given the sheer scale of its user base — nearly 222 million worldwide, and 74.6 million in the United States and Canada — it’s easy to understand why. Netflix is the last, biggest piece of untouched real estate in the streaming world for ad buyers, and as the number of people who subscribe to cable or satellite service continues to shrink, it represents a huge opportunity to reach however many millions of people that will opt into the cheaper tier.
“I think every single TV buyer would want the Netflix audience,” says Dallas Lawrence, senior vp at TV analytics company Samba TV. “Among cord cutters, Netflix is the most used app. This is unlocking a huge market potentially previously unreachable to tv advertisers.”
Several sources The Hollywood Reporter spoke with also noted that even as Netflix pledges to crack down on password sharing, offering an ad-supported tier would allow the company to make up some of that potential lost subscription revenue. As Samba TV’s Lawrence put it, “an AVOD model would immediately make those viewers monetizable.”
With advertising comes the need to let advertisers know whether they’re getting their money’s worth. Which means sharing data — something that the streaming world as a whole and Netflix specifically hasn’t been keen on doing.
“In the ad world … one of the requirements is some level of transparency and third-party auditing and reporting. Advertisers want some proof points,” says Jim Lombard, CEO of connected TV ad marketplace Tetra TV. “[Netflix has] been slow to reveal that stuff.”
Publicly available viewing data for streaming programming remains scant, even as most of the big media companies — Disney, Warner Bros. Discovery, NBCUniversal and Paramount Global among them — have incorporated ads into their platforms (Hulu, HBO Max and Discovery+, Peacock and Paramount+, respectively). Those companies all have long-standing relationships with the ad business thanks to their collection of linear outlets, and thus are presumably sharing their ratings for streaming with buyers — even as they keep virtually all of that data away from public consumption.
It’s likely Netflix would follow a similar model, continuing its broad but not very deep public reporting but keeping the more granular numbers for partners’ eyes only. Hastings said last week that the company likely would outsource the ad-tech aspects of the business rather than building its own system, despite the reams of data it already has on its users.
And building an ad business will take time. “It’s not a short-term fix because once you start offering a lower-priced plan with ads as an option, some consumers take it,” Hastings said on the April 19 earnings call. “And we’ve got a big installed base that probably are quite happy where they are. So think of it as it would phase in over a couple of years in terms of being material volume.”
Several sources noted that the availability of a number of ready-made ad-tech platforms from other companies would likely be faster and cheaper than building something from scratch.
Netflix has also taken a few small steps toward acknowledging third-party data. When Nielsen released its first platform rankings 10 months ago, showing that streaming had overtaken broadcast TV in share of viewers’ time, they earned praise from Netflix co-CEO Reed Hastings, who said “Nielsen in is a good place to referee or score-keep how streaming is changing the U.S. television landscape.”
The industry demand for ad space on Netflix may even give the company some leeway in how open it is to sharing data with advertisers, Tetra TV’s Lombard notes.
“In the initial days, Netflix can get away with being a black box because so many people want access to it,” Lombard says. “Scaling is tough, and you need good talent. But it would be hard for them not to succeed.”
