How Netflix Made the 2022 Upfront Completely Irrelevant

You probably saw the press announcements:  Disney booked a record $9 billion.  NBC Universal took home “its largest ever” upfront haul at $7 billion.  WarnerMedia Discovery made a splash coming together as a combined company for the first time.  They all boasted of record CPM increases and, most importantly, a massive shift of money to their digital/streaming properties.

The sales teams at those companies did tremendous work.  But in the grand scheme of things I’m here to tell you all that stuff doesn’t mean a thing.  Sure, sure, exceeding sales goals means people get nice bonuses, the corporate bosses are happy and the headlines in the trade press are favorable.  But all that stuff is about as relevant as the score of a NFL pre-season game.

The 2022 upfront was nothing but a warm-up act, a prelude to 2023.  In fact, I think if you could give the sales executives at the major media companies a dose of truth serum and a guarantee of confidentiality, they would say the same thing.

This year’s upfront became irrelevant the moment Reed Hastings announced in April that Netflix would finally introduce an ad supported tier.  This was a bombshell.  Never had a media company with so much global scale and power entered the television ad sales marketplace.  I shared my thoughts at the time about Netflix’s unique, historic opportunity to remake the industry.

The announcement was also a call to arms for legacy media sales organizations.  Here was the news many had predicted and feared.  Netflix, the undisputed king of streaming, the company that had broken traditional programming models, sparked millions to cut the cord and destroyed traditional TV profit margins was now gunning for a big slice of the ad pie.  The shadow of the Death Star was darkening the sky. Suddenly all that mattered was carving out the best position for the massive clash to come in the ’23 upfront.

You have to give Hastings credit – here’s a CEO whose company hasn’t sold a single spot, ever, and yet he managed to completely change the conversation in the world’s most lucrative TV advertising event.

When considering the influence of Netflix it’s important to keep in mind that the upfront is about much more than pricing and inventory.  Media companies aren’t just selling impressions.  They are selling perception, a vision of the future, and most importantly, an aura of indispensability.  It’s critical that marketers and agency execs believe that they can’t be successful without partnering with you.

You could see how much the specter of Netflix dwelled in the minds of legacy media in their press releases and presentations.  All the talk was about streaming.  Billions of dollars migrating from traditional linear to streaming platforms.  Unless you read carefully it was easy to miss that they still sold inventory on traditional broadcast and cable. 

I know this isn’t true, but after reading all the upfront press one can’t help but get the sense that major media companies feel the same way about selling units on broadcast and cable as an Apple salesperson does about offering extended warranty packages after selling an iPhone.  It’s the pitch management makes them deliver after they sell the good stuff people really want.

But Hastings wasn’t done.  On the heels of all the positive spin from legacy media about their successful upfront, he drops another bombshell in Netflix’s Q2 earnings call a couple of weeks ago.

“It’s definitely the end of the linear TV over the next five to ten years,” Hastings announced.  It’s no coincidence that he chose to devalue linear television once again in a call where the company revealed its worst domestic sub loss in history.  From an investor standpoint this strategy worked.  Netflix’s stock rose after the earnings call.

However, I also think Hastings was setting a marker down for the ’23 upfront. He was doubling down on what he started in April.  His goal is to keep everyone talking about streaming, especially the legacy media companies. 

Let’s be clear – Hastings’s prediction is absurd.  Linear television will not be dead in five years, or even in ten.  Traditional TV will be around for a long time.  For the same reasons that radio, print, and even direct mail all continue to outlive their premature obituaries. 

Hastings is really, really, smart, he knows this.    But that isn’t the point.  Selling media is about perception as we said, and Hastings is setting the narrative for the industry.  The more they talk about streaming, the more they play to his strength.  I’m sure he and his team love seeing releases where those of us who still work, at least in part, in legacy media ignore or diminish the value of traditional linear television.

Of course no media company with any designs on being relevant in the future can afford to ignore the massive shift of audience viewing to CTV and streaming platforms.  Legacy media has invested billions to build their steaming businesses for good reason. In any sales pitch streaming must be a big part of the conversation.

Yet CMOs get paid to deliver results now, today.  Headline grabbing predictions about linear TV being dead in 5 years are completely irrelevant to how a company looking to move product in 2023 should plan their media investment.  For advertisers that participate in the upfront, divesting too quickly from traditional television would be a huge mistake.  There are still too many eyeballs and too much engagement with traditional TV to ignore.  Not to mention the still troubling, persistent measurement and delivery issues with streaming, but that’s for another blog.

My guess is Hastings ramped up the death of linear talk to foam the runway for his new sales partner, Microsoft.  Candidly I would rather have seen Netflix go it alone than partner with Microsoft or anyone else, for a variety of reasons.  Regardless, Hastings knows that Netflix/Microsoft will be at a disadvantage with clients and agencies because they won’t have any traditional television inventory to package with.  So, the more he can get the industry, especially the sales organizations at the traditional players, to hype streaming and downplay linear the stronger his position will be.

I give him credit, very smart.  But as they say in sports, the other teams have coaches too.  No doubt the sales leaders at the traditional players already have figured this out which, if you enjoy the world of big time media sales, makes what’s to come even more exciting.  The 2022 Upfront was nothing but a warmup for what will be the media showdown of the century – the 2023 Upfront.  Netflix may have won this round, but the fight is just getting started.

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