Netflix's Ad Tier Is Coming Soon—and Media Buyers Have Many Questions

With Netflix's much-anticipated ad-supported tier expected to launch Nov. 1, media buyers are racing to lock in their commitments with the streaming service by the end of the month. Now, new details are emerging about the scope of the streamer's advertising offerings, more than half a dozen media buyers have told Adweek. The sources painted a picture of the streaming behemoth rejecting the regular playbooks of both TV and digital advertising, operating in a class all its own. It's a role Netflix can uniquely play given its enviable audience of more than 220 million logged-in users (not counting password sharers). For instance, at its ad-supported tier's Nov. 1 launch—a date that Netflix has shared with buyers but not revealed publicly—Netflix will offer no third-party measurement and minimal targeting capabilities. Specifications around age, gender, genre, Netflix top 10 shows and Netflix originals are expected to roll out in the first quarter, and at a premium, multiple sources said. Proposed brand safety guardrails could significantly limit inventory. And the streamer’s initial $65 CPM pricetag had buyers balking. However, Netflix also offers a rare bit of transparency, including the knowledge of what shows ads are running against after the fact, data that's hard to come by in the streaming space, according to two sources. The exact timeline for this level of reporting, and how granular it will be, are still unclear, another two ad buyers said. Netflix Snags 2 Snap Execs to Run Advertising Division Ahead of AVOD Debut Despite the allure of being one of the first advertisers on Netflix, some media buyers are rankled by the quick rollout and lack of ad industry knowhow, which was somewhat ameliorated by the hiring of two former Snap execs to run its ad division, Jeremi Gorman and Peter Naylor. “[The hiring of] Peter in particular, to me, signaled that he is going to bring a ton of legacy expertise in doing exactly what Netflix is trying to do. And quite frankly, I think that's what they've been lacking thus far,” a media buyer told Adweek. A Netflix representative declined to comment on the negotiations. "We are still in the early days of deciding how to launch a lower priced, ad-supported tier, and no decisions have been made," the spokesperson said. "So this is all just speculation at this point." Pairing limited targeting with rare transparency Despite not using all the bells and whistles of digital advertising, Netflix’s go-to-market offering will still check some boxes on the typical TV wishlist. Though it occurs after the fact, it’s rare for a connected TV publisher to give marketers the ability to see which content they’re running against. “Post-report campaign show-level details is [something I’m] shocked and excited about,” one buyer said. “It should be that way.” Publishers have long been wary of giving marketers this data, fearful they will cherry-pick specific shows they want to appear in. There’s also concern about violating the Video Privacy Protection Act, which prohibits the linking of identity with video viewing history. However, the streamer's relative lack of data sharing prevents Netflix from running afoul of the regulation while simultaneously setting a new precedent in transparency. “There is a very big opportunity for Netflix to advance the industry in a way that’s great,” said Field Garthwaite, co-founder of content-targeting ad-tech firm Iris.TV. Buyers were also impressed with the streamer’s proposed frequency caps to ensure spots don’t get overplayed, long a bugaboo of advertising on connected TV. Netflix will cap frequency at once per hour or three times per day per household for any particular creative (meaning a brand running multiple creatives might be seen more frequently). There is a very big opportunity for Netflix to advance the industry in a way that’s great.Field Garthwaite, co-founder, Iris.TV Finally, Netflix also includes limited brand safety options. In addition to exclusion lists to prevent brands from running on specific content, the streamer may also prevent ads from appearing on shows with nudity, violence, sex, self-harm and suicide in any of the episodes, as well as stand-up comedy, according to two sources. However, a third buyer said the restrictions would be less strict, and that Netflix would eventually have tech to prevent ads from running against problematic content in one episode, without banishing the entire show from an advertiser's purview. The streamer has also said there won’t be advertising on kids programming, but it hasn’t clarified what percentage of its audience are children or what programs fall under the restriction. “It ties into a limitation of targeting and reporting to not be able to filter down to that level,” one buyer said. These restrictions are coupled with a relatively light ad load: Netflix will allow 4 minutes of ads per hour—the same ad load that will be featured on Disney+'s upcoming ad-supported offering—divided between two pods with 30- and 15-second spots. There is no brand or category exclusivity and only basic competitive separation, with competitors not airing back-to-back spots. With such a low ad load and frequency, in addition to all the content restrictions, “there certainly are questions about the volume of inventory,” one buyer said. Not a true programmatic experience Netflix will be available to transact via programmatic guaranteed deals on its exclusive ad-tech partner Xandr, sources said. Netflix is not sharing data with Xandr, however, and thus buyers can not compare audience reach and frequency between Netflix and other streaming services, a typical benefit to using a tech partner (though one that is not ubiquitous across connected TV), buyers said. Moreover, most media agencies transact with multiple demand-side partners, and buyers can be irked when they have to allocate a certain amount of spend to just one ad-tech company simply to buy Netflix, even if they wouldn't normally see the platform as the place to buy media, said Ameet Shah, partner and global vp of publisher operations and tech strategy at ad-tech consultancy Prohaska Consulting. “The true value of switching this to programmatic is not really clear at this time,” one buyer said, with another noting that buyers will still have to pay a DSP fee. Another quirk of Netflix exclusively using Xandr for all of its ad-tech needs is having to rely on the tech platform for its ad server, a piece of tech all publishers need to store bids, buyers said. It differs from the actual SSP and DSP function, where transactions happen. Xandr over the past couple of years focused more on building up its chops as an SSP and DSP and is not known in the industry as having the top ad server, Shah said. “[Xandr’s] real value is connecting buyers and sellers,” he said. Big audience promises, but marketing remains a mystery In addition to concerns about a lack of technical prowess and curtailed inventory, marketers still don’t know the size of the Netflix ad-supported audience. On Nov. 1, the streamer expects to have around 426,000 unique subscribers to its ad-supported tier, multiple insiders said. By Q3 2023, that number is expected to jump to 13 million, or around 7% of its total subscriber base, according to the sources. The Wall Street Journal also shared less conservative numbers in a report earlier this month, with Netflix forecasting 4.4 million ad-supported subscribers by the end of 2022, 1.1 million of which will be in the U.S., and 40 million by Q3 of 2023. While either estimate represents just a fraction of the 220 million subscriber opportunity, ad buyers aren’t sure if they can even count on the numbers they’ve been told, as Netflix hasn’t yet started marketing its ad tier to consumers. Buyers indicated Netflix may instead go to market with a lower-priced option in the $7-$9 range, according to reports. Netflix’s standard plan, which includes multiple screens and HD viewing, is $15.49 per month. “How they introduce this … will really determine whether this is a couple of million subscriber scale to start or tens of millions subscriber scale,” one buyer said. Gauging Netflix's value Given all these uncertainties, several buyers said they’re in the process of negotiating down Netflix’s initial ask of a $65 CPM, which insiders felt was more of a starting point than an ultimatum. How [Netflix] introduces this … will really determine whether this is a couple of million subscriber scale to start or tens of millions subscriber scale.media buyer familiar with negotiations The $65 CPM is higher than the initial asks of streamers such as HBO Max and Peacock, sources said, and even those other platforms came down from their original CPM offers, with one source noting standard CPMs in CTV are more typically in the $20-$30 range. “An ask is an ask. It's not a demand or something that's inflexible,” one buyer told Adweek. Other buyers were OK paying the expensive CPM, given that there will be relatively few impressions at the beginning and thus not a huge amount of spend required. They just want guarantees that they’ll be able to negotiate down, with one buyer saying they’d like the CPM to settle in the mid- to high $40 range. But buyers’ ability to negotiate depends on how much wiggle room they have; two buyers said the streamer was looking for year-long upfront commitments by the end of September, though one said there is room for cancellation. Another said Netflix's deals terms are more similar to traditional in TV, which typically only allows cancellation months out for a portion of the commitment. The buyer said they were hoping to negotiate the terms to be more akin to what is traditional in digital, which lets buyers potentially cancel their full commitment weeks out. Brands must spend at least $75,000, and Netflix is recommending a $3 million to $5 million commitment per brand, buyers said. The hefty price tag might be a problem given Netflix’s speedy rollout of the ad tier in November, after previously stating its ad-supported launch wasn’t coming until 2023. Though outlier agencies may have allocated a budget for the streamer, that wasn’t the norm. Several buyers, not anticipating a 2022 Netflix launch, told Adweek in August they hadn’t set aside upfront money for the streaming giant. Some clients may increase their ad budgets but, with an uncertain economy, buyers said budgets may come more incrementally, with advertisers tapping into digital, streaming or CTV budgets that have more flexibility. Against this backdrop, some buyers wondered if Netflix offered enough in its initial ask beyond the cachet of advertising with the Netflix name. And they weren’t mincing words. “We had not one client who said, ‘Yes, I am on board with these,’” a buyer told us of Netflix’s initial ask. “And these are even clients who were very intrigued and wanted to be first movers.” Here’s What Buyers Really Thought About the 2022 Upfront