Why Netflix Might Embrace Advertising

Why Netflix Might Embrace Advertising

Advertising

Netflix and its boosters are celebrating the company’s first ever Best Picture Oscar nomination for Roma – but the company is also catching fire from investors. Although its fourth-quarter 2018 financial results beat Wall Street estimates for earnings per share, revenue fell below projections.

Netflix also faces other formidable challenges, such as increased competition from streaming services (e.g., Amazon and Hulu), the entrance of new services such as Disney+, and the enormous cost of spending on original content. So perhaps it’s no surprise that Netflix has raised prices. But in recent months, Netflix has also been testing ads between episodes, and its customers have not been happy about this development. The company said that trailer tests were just a way to surface new programs to loyal viewers, claiming it will help members “discover stories they will enjoy faster.”

With pressure coming from multiple sides, how can Netflix increase revenue and expand its subscriber base without losing its customers?

Competition from Hulu

We’ve seen at least one streaming service employ advertising: Hulu. When Hulu first launched in 2007, all content was completely free and supported by advertisements. In 2010, the company launched its first subscription option while maintaining the original ad-supported tier. Then in late 2016, the brand migrated towards a subscription model. Today Hulu offers ad-supported and ad-free pricing tiers.

The ad-supported tier has served Hulu well by increasing brand awareness and expanding its subscriber base. Granted, Netflix does not need to boost brand recognition. However, Netflix (and Amazon, for that matter) could benefit from this strategy if it wants to enter into new markets, which should be a priority for Netflix given the financial turmoil the brand has been recently experiencing.

Providing an ad-supported service plan might sound like a step backwards to Netflix stockholders. If Hulu moved away from it, why would Netflix bother?

  1. Original Content

The creation of original content is perhaps the most dramatic change in the way streaming services operate. Whereas audiences used to turn to streaming services to watch, say Finding Nemo, people now use these services for original movies and shows, a reality that was underscored by Netflix’s Roma being nominated for 10 Academy Awards.

With Disney’s new movie streaming platform launching later this year, it is clear that movie streaming companies no longer want to simply be a content warehouse, storing thousands of movies and TV shows made by third parties. Netflix, Hulu and Amazon want to lure potential customers into becoming subscribers through their exclusive movies and shows. This means that streaming platforms have the bargaining power, as they all have some unique value nobody will find elsewhere.

The quality content matters. Unique content attracts more paying subscribers, which gives Netflix a bigger platform for potential advertising. With 139 million subscribers worldwide, Netflix could easily increase that number by introducing an ad-supported tier. Doing so would also help relieve some of the financial pressure caused by the expensive production costs of original content – around $12 billion in 2018 alone, and expected to grow by 25 percent  to a whopping $15 billion mark in 2019.

  1. Google/Facebook Duopoly

It’s no secret that a large number of companies today are directing a good portion of their ad spend to Google and Facebook/Instagram (and, increasingly, Amazon). Other channels simply cannot match the performance, scale, and targeting capabilities of these tech giants. The growth of these platforms also reflects the strength of the digital advertising industry and suggests that there is room for more businesses to launch advertising based on their built-in audiences. As noted, Netflix has a growing audience with 139 million subscribers – and Netflix aspires to grow more especially outside the United States.

3 Targeting Capabilities

Knowledge is power. Think about all the behavioral data and Netflix has on its subscribers. Netflix can offer advertisers advanced interest targeting based on their activity on each platform. By using algorithms and machine learning, Netflix can predict which type of content a specific user may want to consume next. This data could also be used to serve users ads that are relevant, and for marketers, effective. In addition, with the help of pixels, Netflix would be able to collect data outside its environment just like Google and Facebook do, thus providing advertisers with more insights on the consumer behavior outside the streaming services and the customer journey.

It’s too soon yet to know if Netflix will launch an ad-supported tier. However, I wouldn’t be surprised if it does in the near future, as companies built on the “ad-free” premise are now acknowledging their advertising potential and evaluating the cost-benefit relationship of introducing ads to their platforms, just like Whatsapp. Is advertising revenue too tempting for Netflix?

To maximize the value of your online advertising, contact True Interactive. We’re here to help.

How the Oscars Have Adapted to a Declining TV Audience

How the Oscars Have Adapted to a Declining TV Audience

Marketing

It looks like the 90th annual Academy Awards will go down as the least watched in history. Preliminary numbers show that overall viewership will dip below 30 million for the first time ever. Until now, the least watched Oscars telecast occurred in 2008, when the Academy Awards garnered 32 million viewers.

And the numbers appear even worse when you realize that the Oscars have been experiencing a ratings decline for four straight years. By contrast, in 1998, the Academy Awards were watched by 55 million people, an all-time high.

Should the Academy be worried?

My take: the ratings decline is simply a sign of change in the way people experience televised events. In fact, the Academy is already doing what any smart brand should do: adapt.

As we’ve noted on our blog, television continues to present its share of limitations for advertisers. Viewership for major events, such as the Olympics, Super Bowl, and Academy Awards, continues to drop as people shift their viewing habits from sitting in front of their TV sets to multi-tasking with social media and catching snippets of content on their mobile phones. Interestingly, Josef Adalain of Vulture points out that the Academy Awards will continue to be profitable for ABC because it’s still one of the few opportunities for advertisers to share their message with a mass audience.

But the Academy is not simply feeding off a smaller audience. The Academy Awards meet viewers where they are with a number of digital experiences. For example:

  • Oscars: All Access makes it possible for fans to get a look at what happens backstage via well placed cameras that catch interesting little moments such as how stars react right after they walk backstage after receiving their Oscars. The All Access feature appeals to people on their phones and laptops who are looking for a fun second-screen experience, especially for cable cord cutters who are shut off from the actual show.

  • With social media, the Academy engages fans through Facebook Live broadcasts, contests, and shout-outs to fans who are tracking the show online. On platforms such as Facebook and Twitter, the Academy cranks out a mix of visual content to tell the story of what happens onstage and in the audience. The Academy has turned the Oscars into a year-round brand by using social to keep fans engaged with content. You can even watch Oscar-nominated shorts on the Academy’s YouTube channel.

Advertisers are also adapting. We’ve already seen many instances of businesses creating real-time social media content to capitalize on memorable Oscar moments, while other brands, such as AT&T, have used advertising dollars to sponsor the Academy’s digital content, such as Oscars: All Access.

The Academy Awards offer a lesson to businesses that emerged in the age of linear TV. In the age of digital, you can still have your audience. You just need to meet them where they are. To maximizing the value of our digital spend, contact us. We’re here to help.