The streamer’s strategy to join the market of advertising is reminiscent of its beginnings however, will the company’s culture change and adopt data transparency in order to compete in the new age?
Netflix‘s strategy to become a part of the advertising industry was unusual. It was looking for extraordinarily large CPMs (the cost of reaching 1,000 people) while the concept of targeting and tracking was almost impossible.
The year was 2005. And Netflix thought it was the right time to start its ad business by putting slips inside its famous red envelopes for DVDs.
“My entertainment clients loved it because of the halo effect of being associated with Netflix,” says Michael Miraflor, a former media buyer and the chief brand officer at Venture capitalist firm Hannah Grey. “And it offered a creative canvas that was large enough to fit proper key art.”
Netflix eventually shut down its DVD sales department since it went all-in on streaming. But nearly 17 years later it’s looking to enter the streaming market in a new way, this time with astonishingly high CPMs and a lack of targeted tracking. The company is still betting on the”halo effect. “In a way, it’s like history is repeating itself once again,” Miraflor declares. “Everyone was disappointed when they decided to end the ad product as well as the sales team of the ad because of the shift into streaming.”
Netflix’s new ad strategies are only getting underway to form. Netflix has technology as well as sales partnership with Microsoft and new leadership in former Snap executives Peter Naylor and Jeremi Gurman and a vague idea of what it’s searching at (sources say that Netflix wants CPMs higher than $60, which is more than double that of its competitors, and has a restricted ability to target its ads the market at the time of launch).
“Advertisers have been kicking on this door for years now,” says Anthony Katsur, CEO of the IAB Tech Lab. “They are kind of a dream media company to work with.”
However, in the advertising market, the big issue isn’t whether the advertisement campaign will succeed almost everyone agrees that it will -However, whether the decision to enter advertising is a good idea for Netflix has for a long time claimed to have forged its own way in the competitive world of entertainment.
“The changes in culture are going to be huge. It’s an extremely distinctive culture I’ve ever encountered and it is proud to be so,” says Kevin Krim EDO’s CEO. and measurement company EDO. “The change will have to permeate that culture first, and then it will have to flow to the business model, the content, the technology.”
Oppenheimer’s Jason Helfstein writes in a September 19 research note that Netflix “is in a unique position to aggregate large audiences and control the timing of series launches for top-tier advertisers, commanding high CPMs.”
In this way, Helfstein expects the streaming company to exceed its goals as customers choose the cheaper level, and the company improves its efficiency in monetizing its services.
“The Street is not yet factoring in the advertising opportunity, and we believe sentiment should improve as more analysts update models,” the analyst states.
The most significant mystery that is being discussed by multiple parties on the agency, buyer, and brand sides, The biggest mystery, according to multiple people on the agency, buyer, and brand sides, is Netflix’s willingness to invest in what is known as the “three Ts”: transparency, targeting, and tracking.
Although Netflix has been reluctant to release data on its viewership, however, the company has begun to ease its position. The company now publishes Top 10 lists and participates in Nielsen‘s The Gauge which examines the time that people spend watching linear television and streaming. Although no one is expecting Netflix to offer more precise viewing figures for particular shows (unlike linear television, streaming is generally advertised by the viewers they want to connect with, rather than by the show they wish their advertisement to be shown on) However, there is a belief that it will be the case that some aspects will have to be clarified. “We are about to enter the awkward adolescent phase of CTV [connected TV, with digital video ads delivered via TV sets], and Netflix isn’t any different,” Katsur states. “Dollars will flow to those partners that are more transparent.”
Adds Parquor the founder Andrew Rosen: “Transparency is still a game, and they still have pieces to play.”
However, Netflix is taking steps to target its audience. When it launches it will allow advertisers to target ads based on specific genres or by the viewers of the most popular series. There will be limited geographic targeting too. However, in the ad area, it’s not enough. Linear television is sold according to gender and age -and CTV choices can be layered on the desire to purchase (In the need of the purchase of a car? Recently purchased a house?) a la Instagram. In order for Netflix to realize its full advertising potential, it’ll need the ability to target these customers.
These tactics can be “almost necessary to justify the price premium, unless the plan is to reduce CPMs over time as the platform scales,” Miraflor declares.
Tracking is the third pillar of advertising. Marketers want as much information about the people who are exposed to their advertisements as they can. Netflix has always protected its customers’ privacy and their data and is not likely to be averse to the current status of the art. It will probably have to prove through third-party verification that its ads are visible and resonating.
Beyond adjusting to the needs of the advertising world, Netflix also risks transforming its operations and content. If advertising does take off and becomes a major business for Netflix it will have to adapt to the give-and-take nature of the business, which businesses like Disney as well as Warner Bros. Discovery are well aware of.
“[As] advertising becomes a more critical part of their growth story, advertisers will gain more leverage and have more of a seat at the table,” Katsur adds.
Most importantly for Netflix, the possibility of changing where the budget for content is spent could also shift in order to increase the amount of time spent on the service.
“If you focus on audience size, you are not going to do some of the interesting, diverse programmings that Netflix has done well with,” Krim states saying that Netflix has created “a niche product for the masses.”
“Advertising changes that model in an interesting way,” the author says, noting it is “it is going to take years to get to the full Netflix ad experience, but it will become something quite distinct, I am confident about that.”