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Advertising on Netflix – How and Why?

After losing subscribers for the first time in over a decade, the streamer’s change of heart has ramifications for advertisers and the ad-tech industry.

On a Tuesday call about its Q1 2022 earnings, Netflix executives announced the company would begin looking into how to bring advertising to its platform.

The move reverses the company’s longtime aversion to ads and comes after the streamer lost subscribers for the first time in over a decade. Now, Netflix could finally open itself to advertising as it faces stiff revenue growth headwinds and has seen its stock plummet nearly 30% since the April 19 earnings announcement.

 

 

An evolving marketplace

Hastings said Netflix will look to figure out how to implement low-end, ad-supported plans over the next year or two. The course correction comes just weeks after CFO Spencer Neumann said advertising was not currently in the company’s plans, but seemed to open the door to a change by warning, “never say never.” The abrupt shift could reflect Netflix’s recognition that the streaming space it has dominated for years is evolving, and that the company needs to change with the times if it is to remain a key player.

After years of growth, Netflix faces a panoply of problems that advertising could help it solve. In a letter to shareholders, the company noted the pandemic-related boost had obscured underlying issues that are impeding growth, including increased competition from other streaming platforms and the high number of households that share accounts — a number it estimates at over 100 million. And while tough earnings results have spurred the decision, experts have been pushing Netflix to adopt ad-supported video on demand (AVOD) for years.

 

 

Curtain falls on act one

However, any ad-supported plan by Netflix would be coming as the type of data-driven advertising Hastings alluded to is becoming more difficult amid a tightening data privacy landscape. Plus, the delay in rolling out such advertising opportunities comes as Netflix’s once-storied data and algorithm advantage has been erased as conglomerates with deeper troves of consumer data, like Amazon and Disney, have entered the streaming wars. Netflix only has one touch point with the consumer, and the launch of a Two Thumbs Up feature suggests its data advantage is shrinking, according to Andre Swanston, senior vice president of the media and entertainment vertical at TransUnion.

Netflix’s move seems inevitable as the streaming landscape shifts into its next phase. The company’s rough earnings report, coming on the heels of disappointing numbers by streaming platform Roku, demonstrates that a first act defined by cord-cutting and content catching up to consumer preferences has ended, and one driven by SVOD that is cheaper, bundled and offset by ad-supported plans, said Tal Chalozin, co-founder and CTO of Innovid, in emailed comments.

 

Despite the challenges of rolling out an ad-supported tier, the move could be a key component of Netflix getting back on track.

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