Netflix continues to roar back after suffering a bruising decline in its market value two years ago. Its stock is trading at an all-time high following its latest quarterly earnings announcement.

And advertising is the star.

Since Netflix launched its own ad tier, its advertising program has become a major contributor to the company’s growth.

For one thing, Netflix’s ad-supported tier saw a 35% increase in membership quarter-over-quarter. The tier accounted for more than half of new sign-ups in the 12 countries where it is available, indicating strong consumer interest in a more affordable subscription option that includes ads.

Netflix also closed its upfront advertising deal-making period with a 150% increase compared to the previous year, reflecting heightened advertiser interest. The platform has been selling not only ad slots but also brand sponsorships, which have contributed to its advertising revenue growth.

In light of the explosive growth of Netflix advertising, we thought it would be useful to help you better understand what exactly Netflix offers to advertisers, how Netflix stacks against the competition, and what advertisers should do to evaluate connected TV advertising. Following are answers to questions that you might have.

What Are Some Principal Ad Units Netflix Offers?

Netflix offers several advertising units for businesses looking to reach its audience through its ad-supported tier. They are consistent with what an advertiser might find elsewhere online:

• Pre-roll ads: these play before a program or movie begins, similar to traditional TV commercials.

• Mid-roll ads: these appear during a program, typically inserted at natural breaks in the content to maintain a seamless viewing experience.

• Post-roll ads: although less common, these can appear after content has finished, usually shorter in duration.

• Sponsorship opportunities: Netflix offers various sponsorship options, including Title Sponsorships, Moment Sponsorships, and Live Sponsorships, allowing brands to align with specific content or events.

Additionally, Netflix is exploring ad units such as a “binge ad” format, which offers an ad-free episode after viewers watch three consecutive episodes with ads. They also integrate QR codes into ads for interactive engagement.

Netflix provides advanced audience targeting capabilities based on demographics, viewing habits, and content context to ensure precise ad placement.

What Should Advertisers Know About Pricing of Netflix Ads?

Pricing for Netflix ads is a flat rate based on the length of a video. For example:

• A 15-second video costs roughly $15 CPM.

• A 30-second video costs around $35 CPM.

• A 45-second video costs about $45 CPM.

• A 60-second video can range from $50-$60 CPM.

In addition, Netflix charges a percentage of the CPM for each layer of targeting added. For example, targeting Top 10 Netflix shows with a 60-second video means paying the $60 CPM plus a 40% Top 10 fee, which raises the CPM to around $84-$85. While these rates are approximate, they closely reflect actual costs. The targeting data fee varies, with the last known rate for Top 10 Shows targeting at 40% of CPM.

What Are the Benefits of Using Netflix’s Ad-Supported Tier?

The benefits of using Netflix’s ad-supported tier for businesses include access to a highly engaged audience, high engagement rates, and the opportunity for global reach and localization. Specific benefits:

• Access to a highly engaged audience: Netflix’s ad-supported tier attracts a significant number of viewers, with 70% of subscribers aged between 18-49, a highly sought-after demographic for advertisers.

• High engagement rates: users on this tier are more likely to engage with ads compared to other streaming services, increasing the effectiveness of advertising campaigns.

• Global reach and localization: Netflix offers advertisers the ability to reach a global audience with localized content, allowing for tailored advertising campaigns that resonate with specific regional audiences.

• Premium ad placements: ads are displayed in prominent locations such as the home page and between episodes, improving visibility and impact.

• Targeted advertising: Netflix provides detailed user insights, enabling advertisers to create highly targeted ads based on viewing history, preferences, and demographics, leading to more relevant and effective campaigns.

• Innovative advertising formats: Netflix is exploring new ad formats and opportunities, such as sponsoring popular TV series launches and associating ads with public holidays or top shows, providing unique marketing opportunities.

Netflix also wants to position itself as a premium advertiser, aiming to deliver a smoother ad experience than competitors. Unlike some platforms, such as FreeVee (Amazon-owned), where ads may interrupt scenes at awkward moments, Netflix is committed to keeping ad breaks seamless, ensuring the viewing experience is not disrupted.

How Does Netflix’s Ad Program Stack up Against Its Competition?

Netflix’s ad-supported tier offers a competitive option in the streaming industry, but there are notable differences compared to its competitors like Hulu, Disney Plus, and Amazon Prime Video. Here’s a critical assessment of how Netflix’s advertising offerings compare:

Targeting Capabilities

• Netflix: Netflix provides advertisers with targeting options focusing on demographics (age, gender, location), viewing habits (genre preferences), and content context (e.g., ads placed alongside the Top 10 list). This allows for precise audience targeting based on user data.

• Competitors: Hulu offers advanced targeting capabilities that include behavioral targeting and custom audience segments. Disney+ applies its extensive user data from its ecosystem (including ESPN and Hulu) to offer detailed targeting options. Amazon Prime Video uses its vast shopping data to provide highly personalized ad experiences.

 Ad Formats and Engagement

• Netflix: as noted, the platform offers pre-roll, mid-roll, and post-roll ads with unskippable formats, ensuring high engagement rates. Netflix’s users are reportedly more engaged with ads compared to other platforms. Additionally, Netflix is exploring innovative ad formats like binge ads and sponsorships aligned with popular shows or events.

• Competitors: Hulu is known for its interactive ad formats and pause ads, which engage users differently. Disney+ maintains a family-friendly approach by excluding ads from kids’ profiles. Amazon Prime Video offers shoppable ads that directly link to products on Amazon.

Reach and Audience

• Netflix: With more 40 million users on its ad-supported tier, Netflix provides access to a large and diverse audience. The platform claims higher engagement rates than competitors, which can be attractive for advertisers looking to reach a highly engaged viewer base.

• Competitors: Hulu has a well-established ad-supported model with a broad reach in the United States. Disney+ benefits from its global brand recognition and family-oriented content. Amazon Prime Video benefits from its integration with Amazon services to reach a wide audience.

Cost and Accessibility

• Netflix: advertising on Netflix requires a substantial investment, making it accessible primarily to large organizations willing to commit significant budgets. However, this exclusivity can also mean less competition for advertisers who can afford it.

• Competitors: Hulu offers more flexible pricing models for advertisers, including options for smaller budgets. Disney+ and Amazon Prime Video also provide varied pricing structures that cater to different advertiser needs.

While Netflix offers strong targeting capabilities and high engagement rates, its advertising model is currently more suited for larger advertisers due to cost constraints. Competitors like Hulu and Disney Plus offer more flexible options that might appeal to a broader range of advertisers. Each platform has unique strengths that cater to different advertising strategies and objectives.

A Note on Measurement and Third-Party Tracking

While Netflix collaborates with measurement partners like Nielsen and EDO, it does not allow any third-party tracking beyond its selected partners. Advertisers need to rely on Netflix’s built-in reporting and these partner insights to evaluate their campaigns.

How Should Advertisers Proceed as They Consider Connected TV Options?

As advertisers assess the landscape for advertising on Netflix and its competitors, several strategic considerations can help guide your decisions:

Evaluate Audience Reach and Engagement

• Netflix: With a substantial global subscriber base, Netflix offers access to a highly engaged audience, particularly within the 18-49 age demographic. Advertisers benefit from high engagement rates, as users are more likely to interact with ads compared to other platforms.
• Competitors: Hulu provides access to a diverse audience with flexible pricing options, making it accessible to businesses of various sizes. Disney+ offers strong family-oriented content and is expanding its ad-supported tier with enhanced targeting capabilities.

Consider Targeting Capabilities

• Netflix: offers targeting based on demographics, viewing habits, and content context, allowing for precise audience targeting. This is advantageous for brands looking to align ads with specific genres or popular shows.

• Competitors: Disney+ and Hulu offer advanced targeting options, including programmatic opportunities and enhanced measurement features. Hulu’s integration with Disney’s ecosystem allows for cross-platform targeting, which can be beneficial for campaigns spanning multiple Disney-owned properties.

Assess Cost and Accessibility

• Netflix: requires a significant investment, with a minimum spend of $10 million, making it more suitable for large organizations. This exclusivity could mean less competition but also limits accessibility for smaller businesses.

• Competitors: Hulu offers lower entry costs, with campaign minimums as low as $500, making it more accessible to smaller advertisers. Disney+ is also expanding its ad offerings to attract a broader range of advertisers.

Explore Innovative Ad Formats

• Netflix: is experimenting with innovative formats like binge ads and sponsorship opportunities aligned with popular series launches or public holidays. These formats can enhance brand visibility and engagement.

• Competitors: Hulu provides interactive ad formats such as shoppable ads and pause ads that engage viewers in unique ways. Disney+ is expanding its ad formats and measurement capabilities to improve advertiser accountability and effectiveness.

Apply Measurement and Analytics

• Netflix: collaborates with third-party measurement partners like Nielsen and EDO to provide advertisers with insights into campaign performance. This can help in optimizing ad strategies based on detailed analytics.

• Competitors: Disney+ offers enriched measurement features through partnerships with vendors like DoubleVerify, and Moat, providing comprehensive data on campaign performance5. Hulu also provides analytics tools to measure brand lift and ad recall.

Further Recommendations for Advertisers

• Align budget with platform requirements: consider the cost implications of each platform. Netflix may be ideal for large-scale campaigns due to its high entry cost, while Hulu offers more budget-friendly options.

• Target audience appropriately: use the advanced targeting capabilities of each platform to ensure your ads reach the right audience. Consider cross-platform strategies if advertising on multiple services.

• Experiment with ad formats: explore innovative ad formats offered by these platforms to enhance viewer engagement. Tailor your approach based on the unique offerings of each service.

• Use measurement tools: use the analytics tools provided by these platforms to track performance and optimize campaigns effectively.

At True Interactive, we’ve been helping our clients maximize their digital ad spend since the dawn of digital. To learn about our client successes, visit our website and read our case studies about digital advertising.