Several media agencies in conversation with international website The Drum believe that Netflix has set a high entry price for its ad-funded entry level. At $65 CPM (the price of serving ad impressions to 1,000 people), it’s significantly more expensive than many streaming services (and even major calendar events like the high-demand Super Bowl). At this early stage, media buyers are unimpressed.
Concerns about Netflix’s ad model
Netflix’s early sales talks were shrouded in silence. We are not in the media stage of these conversations and a lot of the information we have has been leaked and contested by the brand.
For example, it was initially reported that Netflix would install a $20 million spending cap to prevent any brands from saturating the platform. This appears to have been poorly communicated or gone for a minimum spend of $20 million – indicating that the platform is looking for considerable commitment from a small number of brands.
A leading brand-side marketer says such a minimum spend limit would be too restrictive for national advertisers, perhaps even in the US. Another buyer questioned why they deviated from the most favorable CPMs on a national broadcaster for Netflix’s unproven product.
That’s without taking into account the advertising experience, of which we haven’t seen anything yet – although if it’s as good as the current customer experience it could lead the market. But this is easier said than done. The brand’s merchant complained of seeing six of the same McDonald’s mid-roll ads consistently interrupting his experience of watching movies on Prime Video the night before. The Netflix experience would have to be considerably better to impress brands.
Currently, Netflix is scheduled to launch without a measurement partner. This is a breach of contract for this marketer who needs to prove the channel’s effectiveness.
Despite these issues, perhaps after a few exchanges, Netflix will likely find some interested marketers — Quibi has secured $100 million in commitments ahead of launch. Customers have been interested in Netflix’s audience and user experience for years.
For now, the product is in the hands of Xandr, Microsoft’s technology company. One of the top AV buyers is worried that Netflix’s Xandr partnership will lock it in a long-term walled garden. “Can’t do that, it’s not YouTube. It’s not even Amazon. Netflix is saying you can only buy a path with a very high CPM with very limited range.” How the group is working on building the ad tier that will be released in just a few months remains to be seen.
And so will Netflix be able to scale its advertising product enough to be worth considering? Reports range between 500,000 and 4.4 million, depending on how much traction it gains in the market – and whether it hits that launch date. Will these be the TV viewers that marketers crave for ads or just the same people they are reaching in linear environments appearing elsewhere? This will remain to be seen.
The ad tier, with a lower monthly subscription cost, will be sticky for dropouts and appealing to those who haven’t tried Netflix – similar to the model adopted by Spotify. What Netflix doesn’t want is for millions to downgrade to the ad-funded experience.
One media buyer wondered if Netflix can remain a big player in the US without some investment in live sports. “Every other streamer has this, keeps the audience engaged and coming back monthly. If Netflix doesn’t have good content, subscriptions disappear and there’s no reach, then it’s a very precarious position. by the brand”
A report by Variety cites an ad load of four minutes per hour for a series and multiple pre-rolls for movies that are harder to stop. They are reputed to be pre and mid-roll ads, lasting 15 or 30 seconds – not entirely unlike the YouTube model. But how far will Netflix produce content good enough to maintain the same standard?
Netflix clarified that the prices reported in the press were speculative and represented the “early days” discussion.
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