Canadian Ad Insider

Netflix takes the wrapped off its newest tier - “Basic with Ads” tier tomorrow at a price tag of $5.99 and show up to 5 minutes of ads each hour. The advertising has been talking about it for months in anticipation on its impact for and brands. 
For our latest edition of Industry Opinion, we caught up with Jill McDonald, Associate Partner M&K Media [TCO].

First thoughts on what Netflix ad-supported tier?
Jill - Overall, it was a matter of time before this happened and we all knew it was coming.

• Pricing and the offer are good for both consumers and Netflix
• Given consumers will continue to scrutinize spending due to inflation and stacking streaming services, a lower priced subscription model makes sense to the average consumer
• It also gives Netflix the perfect opportunity to introduce this ad-supported tier ($5.99/month) to consumers to “give them a break:” on monthly costs – with the sacrifice of ads
• In 2023 when Netflix cracks down on subscription sharing, even more, new users will subscribe to the ad supported model and drive growth for Netflix – increasing inventory tremendously
• Rogers issued a white paper earlier this year noting SVOD penetration has plateaued since 2020 in Canada, and approx. 3% of streamers in Canada exclusively access SVOD.  So AVOD is a definite trend and Netflix is taking advantage of this.

Is this good for brands?

Jill - It opens up inventory and incremental reach opportunities in general, but premium priced

• Brands with massive budgets will test this tactic

• Position as a premium reach extender to current video campaigns
• Brands with smaller budgets will wait and see, too expensive and lack of targeting capabilities
• Wait to see how to access inventory, what are the options and how can we truly test to see if works
• Today, we can buy around Netflix, in future will see

• Since this is a new AVOD platform, we don’t have historical data on engagement.  Paying a high premium for Netflix will be a gamble at this stage.  Blue chip products with large budgets may feel more comfortable, but it is risky for others.

Jill - We have many questions that will drive how the industry is impacted by this new ad supported media channel 

• Questions around the premium CPM should be scrutinized and not paid upfront at face value
• Why is this inventory so much more premium when we can’t layer on targeting that other AVOD services offer?
• How can we measure success for awareness KPIs to justify this cost of media?
• What will happen next to CPMs if this is where we are starting?
• Overall, Netflix entry-level pricing will continue to shore up other premium pricing, which has already been increasing the gap in cost-efficiencies between digital video and linear. This is the reverse of what we’d like to see for an evolving market and maintaining current efficiencies will be increasingly difficult.
• Principal SVOD vendors (including Disney Plus in the US) are moving to a hybrid SVOD/AVOD model.  This trend will continue as viewers adapt to viewing ads on these platforms.  As smart TV’s increasingly penetrate the Canadian household population, we predict a long term trend of streaming vendors moving toward a linear model of advertising pods in order to build revenue, but with the added enhancement of targeting.

What impact will this have on consumers?

Jill - Consumers will pay less for ad supported content

• Consumers are used to ads on linear TV so an AVOD platform isn’t a foreign concept.  If watching ads equates to a wider variety of programming at a lower cost, most consumers will welcome this, especially in the current economy.

• They will want to secure a cheap subscription now and for the future as password sharing is eliminated so they don’t miss out on Netflix content
• At one point, Netflix-produced programming was seen as more premium, compelling and edgier than other vendors.  Over the past few years, we’ve seen Amazon Prime, HBO and Disney + produce programing on par or better than Netflix.  Introducing an AVOD option will allow Netflix to retain market share in light of this environment
• When new premium programming is released, they will want access to it and advertisers will also want access to this inventory to justify the premium CPMs

What are your thoughts on the proposed frequency caps that Netflix plans to implement?

Jill - Netflix is testing the user experience waters. They want to start with an optimal ad ratio experience to bring in new users, and from there will ramp up

• “Binging” is an important consideration, especially for Netflix and this frequency cap will minimize the annoyance factor, while they gather more intel

• Given the lack of data regarding reach/frequency and duplication, in general for digital offerings, this type of frequency cap is not unusual
• We agree with this frequency cap and is what we layer on to our streaming buys.  We’ve all felt frustrated when seeing the same ad in every streaming commercial pod, and consumers tend to ‘blame’ the advertiser as opposed to the vendor. Instilling a relatively low frequency cap will benefit the consumer and advertiser.  However, if Netflix isn’t able to sell adequate inventory off the bat due to the high CPM, they may be challenged adhering to this guideline.

Targeting, (in phase 1) will be limited to Netflix’s Top 10 TV shows in each region as well as content genres like action, drama, romance and sci-fi.

Jill - Netflix wants enough data to gauge success of phase 1

• Top 10 shows and genre popular genres are where most eyeballs and attention are
• Also, will get new users hooked on top content and used to ad supported experience
• Netflix may have challenges selling a large amount of inventory in the initial AVOD offering due to high CPMs, high dollar commitment from advertisers and lack of historical data.  Sticking to the top 10 shows will alleviate unsold inventory issues.
• This will also ease viewers into accepting advertising on Netflix.

Netflix is launching with a minimum commitment agency commitment.

Jill - Clearly, this approach limits who can test this platform and who cannot at this time

• Massive minimum commitment that agencies/clients with large budgets can even consider while smaller agencies/clients cannot

What is the benefit to a brand to be one of the first to advertise on Netflix?

Jill - There will be a limited number of products during the launch of ads.  These products will be seen as premium and there will also be less ‘noise’ for viewers watching ads.

• Press and being the first one to do it
• Seen by user as a brand in the know

Netflix has not promoted this new ad-supported tier to consumers (in a meaningful way), what impact could this have on November 1st?

Jill - Our understanding is that Netflix is looking for new users vs. cannibalizing existing franchise and hard to see this building quickly without some general marketing (not seen as yet)

• Opinion: as knowledge of the offering grows there could be a bigger shift from current users for the reasons mentioned earlier about acceptance and familiarity with AVOD and growing economic concerns.