The headlines last week were head-spinning. Elon Musk is buying Twitter, CNN+ shuttered barely a month into its existence, and Netflix took a pounding after announcing its first loss of subscribers in more than a decade.
Consuming media is our national pastime so it uniquely captures the attention of millions of consumers in ways no other business category can. Last week was proof yet again. Does Twitter light up when the price of toilet paper increases like it does when Netflix announces it’s considering taking ads for the first time?
The news that Netflix will introduce a lower priced, ad supported tier should not come as a surprise to anyone. Pretty much everyone I know in the business, myself included, has been predicting this for years.
At some point Netflix was going to hit a wall in terms of subscriber growth. When that day came, and it appears to have come last week, they would need to figure out another way to generate revenue. The opportunity to monetize the billions of impressions Netflix generates in the ad market is just too good to pass up.
While perhaps not unexpected, the news about Netflix’s change of heart about advertising was not welcome in many quarters.
I don’t understand this. Yes, I get the ad experience in much of the media we watch has become incredibly annoying. Traditional television jams too many ads into a given hour. It’s part of the reason people have fled to streaming. Digital media can be even worse. The intrusiveness of the ad experience on many digital news sites is borderline obscene. And why must I sit through a :30 pre roll ad before watching a :90 second highlight package from the Yankee game?
But the theory behind advertising in media remains sound. Exchanging a bit of our attention for a sponsor message helps offset the rapidly rising cost of accessing the content. And in the case of Netflix whenever they do introduce ads consumers will have the option to pay more to retain an ad free experience. What’s so bad about giving people a choice? Other SVOD services like Peacock, Hulu and HBO Max are finding success with multi-tiered offerings (with and without advertising).
Interestingly, many analysts seemed bearish on Netflix’s ability to build a successful advertising business. They noted Netflix’s lack of an in-house advertising team and supporting technology systems as impediments to success. The well-established, highly effective ad sales units of Disney, NBC Universal and Discovery/Warner Media are light years ahead of Netflix in this area. Some argue that the advantage of the established players is so great that Netflix should consider outsourcing the entire function.
This would be a huge mistake in my view. With all due respect to my many friends in ad sales at these companies, their offerings are largely derivative and unimaginative. To a certain extent one can’t blame them since they already have mature, well established multi-platform media sales operations. When your job is to grow ad revenue for multi-billion media portfolios you can’t afford to rock the boat.
Netflix’s lack of existing ad business is a gigantic plus in my view. In fact, it’s nothing short of an unprecedented, historic opportunity to reinvent the television ad model. Given their already proven track record of establishing new norms in the business, I wouldn’t bet against them.
Reinventing ad formats, pricing and sponsorship models are the easy parts. The sexy opportunity is the data. Netflix can completely revolutionize the business just by thinking differently with its data. They are sitting on the biggest treasure trove of viewing insights in the industry. While the rest of the business is struggling with Nielsen and other 3rd party sources of accurate viewing data, Netflix can come to the table with a new solution not tied to any antiquated, legacy approach.
And what advertiser wouldn’t want a glimpse at what Netflix knows about how audiences globally consume content? How much would car companies, wireless carriers, or insurance providers – three of the most prolific advertising categories on TV – be willing to spend to learn more about the cross screen viewing habits of the ever hard to reach Gen Z demo? What if you’re P&G and you want to introduce a new product in Europe? One of your first calls would be to Netflix given their strong penetration and understanding of that marketplace. The possibilities are endless.
As a proven tech company, I think Netflix would relish the challenge to build new, state of the art systems that make it simple and easy for advertisers to interface with their content. Combining great tech with a white glove service sales team that leans on data and creativity to help advertisers reach Netflix’s unparalleled global audience would create the most formidable advertising operation this side of Google.
I can’t think of a more exciting opportunity in our business right now. Advertising gets a bad rap in my view, from Netflix as much as anyone in recent years. But good advertising grows businesses, creates jobs, and makes the content we love more accessible. My guess is Netflix will learn to love advertising.
In a business ripe with ironies, it’s hard to imagine a richer one than this. Reed Hastings, the man who foreswore ads for years, is now positioned to be the “Mad Man” of the twenty-first century and make television advertising great again. Even in Hollywood you couldn’t make it up.