Netflix’s ad tier continues to do well, despite some challenges
Netflix will be available in November unveiled The long-anticipated, ad supported tier allows customers in selected markets, including the U.S. to offset the cost and allow their viewing to be interrupted by ads. The Consumer Electronics Show Jeremi Gorman, President of Worldwide Advertising at Netflix, gave some insight into the product’s performance and the streamer’s future plans.
At Variety’s Entertainment Summit, a Variety interview was conducted CESAccording to the executive, the company is happy with its first selection of advertisers.
Gorman said that participation was broad across all brands. “We’re seeing CPG companies, luxury companies, automotive companies…[and] retail. We are seeing a wide range of products. She noted that this is good for the customer experience as viewers won’t get bored with car ads after another. Gorman said that there are many advertising types and she believes we will continue to see more.
In the interview, we also discussed some of the initial complaints and concerns regarding Netflix’s entry into advertising.
They include the criticisms the company is getting about its high ad price, which one industry executive called “Super Bowl.” CPMs.” Gorman however justified the pricing, but acknowledged that the market will eventually dictate the pricing Netflix can get.
“From a supply-demand standpoint, premium CPMs reflect two things. One is that we couldn’t take as many advertisers. We did not want to disappoint anyone. A second reason is the premium content environment that the ads operate in. This I think justifies a high CPM.
It is still up for debate whether Netflix is a premium environment. Netflix appears to be shifting its expectations.
Gorman stated, “I think that we are certainly humble enough to understand we are top of the market and, in addition, the market will more than or less dictate to our reasonable CPMs.”
The inclusion of ads in Netflix’s ad supported service is another concern. Many of the content deals with Netflix didn’t include AVOD rights (advertising videos on demand), as the streaming service wasn’t designed to be ad-supported. Netflix is limited in ad inventory. It can’t run ads against Netflix Originals if its deals don’t include the appropriate rights.
Gorman also spoke out, saying that Netflix was actively addressing licensing issues.
“That’s happening, as we speak, every day. We are currently renegotiating contracts we made a long while ago,” she stated, noting that the “vast majority”, of content people regularly watch, is available on the Ad tier surface. Gorman indicated that Netflix has between 85% and 95% of its content accessible on the adtier.
Also, there is the real concern from a business standpoint that offering a cheaper tier may lead to Netflix customers moving to lower-cost tiers at a faster rate than the growth in the ads. Gorman dismissed those concerns, stating that Netflix customers have historically stayed on the same plan.
Unfortunately, the exec couldn’t comment on the uptake of the ads-supported products, as Netflix is poised for earnings announcements. However, he said that “we’re happy with the growth we see.”
Netflix’s ad-tier is currently available in the U.S. and Canada. Netflix has no immediate plans for expansion, but it will continue to seek out larger ad markets in the long-term. Basic with Ads subscribers have to live with lower quality video (720p HD) and can only stream from one device. They cannot also download content to their device for offline viewing.
Netflix will continue to offer more than traditional ads. They plan to include dynamic insertion of ads near relevant moments and single-show sponsorships. Later, marketers will be able to target ads according to age and gender.