Netflix finally announced plans to offer ads on their streaming service after years of resisting the business model. Brands will have a new way to reach millions of households when the world’s largest streaming service introduces a lower priced subscription option with ads in one to two years. I am fascinated by the prospect of Netflix shaking up the digital advertising space even though few details have been announced such as ad formats, targeting, and pricing.
Netflix Advertising’s Scale
The possibility of more competition and innovation is a welcome development for the digital ad market which is currently dominated by three players. 60% of global ad spend goes to Amazon, Facebook, and Google. I don’t expect Netflix to be an immediate threat to any of the three major advertising platforms. Instead, I see Netflix advertising replacing traditional TV advertising and eventually becoming a critical part of brand campaigns. The streamer can offer companies highly impactful ad spots in a brand-safe environment that reaches millions of people every day. Netflix counts 222 million households as paying subscribers and estimates that an additional 100 million households access the service through password sharing. The average Netflix subscriber spends two hours per day watching the streaming service. That adds up to a lot of eyeballs and available ad impressions even if only a fraction of subscribers switch to the ad-supported format.
Streaming Needs Advertisers and Advertisers Need Streaming
In 2021, Gartner Research found that adults 18-43 now spend more time watching streaming TV than broadcast, cable and satellite. Until recently, I was concerned that the trend of households switching to streaming would prevent advertisers from having a way to reach consumers when they are together in front of the TV. Media companies have focused on paid subscriptions as the primary business model for streaming. Advertising has only been merely an afterthought for many years. That has started to change as streamers look for new ways to grow their revenue and subscriber base with lower priced ad-supported tiers.
Netflix and Disney+ are now the only two large streaming services that don’t offer advertising. Disney+ plans to introduce a lower priced subscription tier with advertising before the end of 2022. Other streaming services have featured advertising for many years like Amazon Prime Video and Hulu. Newer services like Discovery+, HBO Max, Paramount+, and Peacock launched ad supported tiers in the last two years. Connected TV and OTT (over-the-top) advertising technology and formats are generating millions of impressions, but are still just scratching the surface of their potential reach and effectiveness.
What Will Set Netflix Advertising and Streaming Ads Apart?
I hope streaming services, brands, and advertising agencies work together to create a future full of high quality and engaging streaming ads. Streaming is beginning to resemble broadcast and cable with long blocks of non-skippable ads. I frequently find many streaming services full of repetitive ads that are simply repurposed TV spots with no frequency caps. Consumers may reach a tipping point with intrusive ads that push them to unsubscribe. I suspect that ad design and advertising technology will become a major competitive advantage for services in the future.
Imagine the possibilities of Netflix advertising offering highly interactive ad formats that are contextually targeted to what viewers are watching on Netflix. Disney-owned Hulu has been at the forefront of offering interactive ad features that brands can use to engage viewers with content like recipes. Peacock has also focused on creating a premium ad experience that offers interactive engagement ads and requires creative tailored to the service. Amazon has the distinct advantage of having first party shopper data, which they use to highly target ads for brands on their streaming services. I look forward to watching how Disney+ and Netflix set their ad products apart from others in the future.
Do you think Disney+, Netflix, and other streaming services will capture a large part of the digital ad market? What type of distinctive ad formats and targeting can streaming services offer brand advertisers? Share your thoughts in the comment section below.