As Netflix's Ad Tier Launches, Many Marketers Are Watching From the Sideline

When Netflix thinks viewers may no longer be paying attention after an extended time, the platform famously asks, "Are you still watching?" However, when talking to marketers about the streamer's ad tier launch, there's no need for an inquiry: Advertisers remain fixated on Netflix's new AVOD model. After rushing through an accelerated timeline, which involved the streamer initially meeting with advertisers in August to secure upfront commitments by the end of September, Netflix has officially launched its ad tier, which rolled out as of Nov. 3 in around a dozen countries, including the U.S., Australia and the U.K. And despite early reports that the tier could come in as high as $9, it's debuting at $6.99 per month, which is $1 less than Disney+'s upcoming competing ad-supported product. "This is something that Netflix had to do as a company because consumers heading into 2023 have already been facing price pinches, given the fact that there's so much choice in the streaming landscape. As we enter 2023, consumers will face the price pinch even more with the looming possibility of a recession," Mike Proulx, vp, research director, Forrester, told Adweek. "So in order for Netflix to not only retain certain amounts of its users and help to mitigate churn but also attract a new user base, it has to offer a price point that is more attractive to those users who are willing to tolerate it." Unfortunately, that cost savings wasn't present on the ad buyer side, at least in the initial reports, which stated Netflix was demanding a $65 CPM (cost per thousand viewers reached). In addition, though Netflix will collect the date of birth and gender of subscribers at sign-up, its targeting capabilities are minimal, only including broad categories such as country and genre. Netflix and … Booze? AB InBev to Air First Beer Spot on New Ad-Supported Tier In the future, the streamer plans to add third-party measurement and brand integrations, with Jeremi Gorman, president of worldwide advertising at Netflix, recently touting advertising experiences that "members expect and deserve." However, advanced capabilities aren't expected to come until 2023. For now, there are limited brand safety options, and around 5% to 10% of Netflix's content may be missing from country to country based on licensing deals. "I know agencies were successful in getting the rates down slightly, but I believe it's still a very aggressive CPM that they're charging that is not warranted right now for the product," one buyer told Adweek, speaking on the condition of anonymity. "So my POV is still that I don't see it as a must-buy. Especially not at launch when there are still so many other places that we can reach our consumers." The 'wait-and-see' approach Several marketers told Adweek that their clients didn't opt to be part of Netflix's upfront buys, instead choosing to hold out for the scatter market and potentially lower pricing. Karen Benson, evp, director of integrated media, Deutsch NY, said many clients were adopting a "wait-and-see approach" rather than choosing "just to get out there" for the rollout of Netflix's ad-supported tier. Some concerns include clients wanting to have the right creative on the platform. Though Netflix announced ads will be divided into 30- and 15-second spots, with ad loads averaging four to five minutes, it's unclear what types of ads would actually be the best fit for the streamer. For instance, as Benson explained, ads that tell a story could potentially be more successful since Netflix is known for its binge-watching model, but there's no direction or research thus far. Additionally, budgets are on everyone's mind. With Netflix's late launch, the streamer missed out on the dollars advertisers allocated in the upfront market. While some industry insiders said advertisers had earmarked budgets for a potential Netflix launch, that wasn't the norm. And the current economic situation further complicates things. "I think that when advertisers now are starting to look at how they're spending their money, and a lot of marketers are tightening up their budgets, and now there are two new big entrants into the marketplace [Netflix and Disney+]. What is that going to do to the budgets holistically? I think that Netflix is going to be challenged. I think people are going to be super interested at first. They do have great content," Benson said. "Launching at this time period is great because a lot of people want to be in front of folks around the holidays, right?" Benson continued. "Retailers want to be out there. They're probably willing to pay those extra dollars from a CPM standpoint, but quickly thereafter, I think that they're going to be in for a rude awakening come 2023, especially if they don't deliver on some of their measurement that they've been talking about." Like and subscribe Though the streamer announced its ad tier pricing and other details on Oct. 13, Netflix's consumer-facing marketing around the new offering has essentially been nonexistent prior to launch. Despite this lack of marketing, buyers previously told Adweek the streamer was projecting to have more than 400,000 ad-tier subscribers for its debut. Before Netflix's pricing announcement, MoffettNathanson estimated the ad-supported tier could reach 1.8 million subscribers by year’s end, with as many as 21.5 million signed on by the end of 2023. However, the company also noted that the number might not drastically improve the streamer's overall subscribers, which currently sits at 223.09 million. "We're worried about the potential spin down, as we say. Will people move from the higher-priced tiers to take the ad tier? So that's concerning," said Michael Nathanson, a senior research analyst at the company. "But with that said, there seems to be real advertising interest, as there should be, in this product." Netflix Builds Up Advertising Team Days Before New AVOD Tier Launches Despite the reservations, as Nathanson noted, Netflix's ad tier is still causing excitement among marketers. After all, noted David Campanelli, evp and chief investment officer, Horizon Media, the initial reports of sky-high CPMs were somewhat "overblown." "I'd be shocked if a seller didn't ask for a high price to start and then negotiate it from there. That's every deal I've ever done in my life," Campanelli said. "It kind of felt like it was reported as $65 CPM, take it or leave it. That's not how the conversation went for us, at least. The pricing got to a place where we were comfortable with many clients." Other industry insiders reiterated the point. "Even in areas where we weren't able to move forward, or it didn't make sense for a particular client at an agency level, we found that just the conversations were more flexible with time," Kevin Cahn, avp, video COE lead, Kepler Group, told Adweek. Finding its advertising Buds One of Netflix's first advertisers, Anheuser-Busch InBev, proudly announced prior to launch that it would have the first beer ads to appear on the platform. And during Netflix's pricing announcement in October, Gorman noted that the streamer had “hundreds of advertisers” worldwide and inventory was "nearly sold out." Netflix did not make Gorman available for a follow-up interview, instead pointing Adweek to her previous comments. Campanelli noted that other streamers, including Peacock and HBO Max, had more modest capabilities and inventory at their launches. However, as the platforms grow, so does the inventory, and pricing comes down. It's all about managing expectations. "Our expectations were modest from the start, knowing that this was not going to automatically flip 50 or 60 million households from SVOD to AVOD. It was going to be a couple of million at most over the first three to six months. So having those expectations so far, I think they're roughly meeting those expectations," Campanelli said. "We've had definite interest from clients. I think every client has shown interest as the details came in on pricing and what deals would actually look like. Not everyone was interested in being a partner right at launch, but we've had significant interest, and we have a deal in place with them that we're excited about." Overall, ad buyers look forward to seeing how the platform grows and adds more capabilities, including advanced audience targeting, better brand safety and programmatic selling. "It's exciting times for us to be able to watch what has been a streaming service with a whole lot of cultural impact and massive consumer reach across a whole lot of markets globally, foray into the ad-supported realm," Cahn said. "Just what it means for all of us on the sell side, the buy side, as brands and marketers, and consumers because it's a big change. And one that had been in the works, if not by design, for a long time as the streaming space matures."