The launch of ads on Netflix in November 2022 was met with much fanfare, along with frustration from the buy-side at the high CPMs for advertising on the streaming service. Almost two years on, the cost has come down to half the original price, but buyers continue to express concerns around limitations in scale and the high levels of minimum spend on Netflix.
VideoWeek spoke to senior buyers at media agencies, two of whom chose to remain anonymous due to their relationship with the streaming giant. And there was positive sentiment around the evolution of the offering, with CPMs falling from around £60 to £34 for a 30-second slot, which the media planners agreed was more in line with rival streaming services, most notably Amazon Prime Video – whose introduction of ads is considered one of the factors that drove down Netflix CPMs.
“Initial CPMs were on the higher side, reflecting the platform’s ambitious market positioning,” comments Jonathan Manning, Director of Advanced TV at Medialab Group, an independent media agency. “At the time, the targeting options were quite basic, and there was still work to be done in terms of scale and audience insights. Additionally, some of the early campaigns faced challenges in meeting delivery targets, leading to adjustments in frequency caps to ensure commitments were met. While it wasn’t the smoothest start, it highlighted key areas for growth and improvement.”
Another UK media planner described the launch price as “astronomical”, and the current cost as “not ridiculous”. However, they note that the £34 CPM does not include targeting options, which continue to drive up costs.
But one agency executive claims that the £35 price point is only accessible to advertisers prepared to agree to “fairly substantial” spending commitments. For buyers who cannot meet that minimum spend, the CPM is more in the region of £45-50. “It suddenly makes it prohibitive for a lot of advertisers,” he says. “And it makes it very challenging to start moving things around within plans to accommodate Netflix when they’re not willing to accommodate us, from a volume negotiation point of view.”
Two Tier Problem
Three of the buyers also expressed concerns around scale. According to UK measurement body Barb, 2.7 million UK households now have access to the Netflix ad tier. The UK media planner called this ad-supported customer base “tiny”.
“The issue with Netflix remains scale,” they said. “Whilst Netflix does account for a large share of viewing time (21 percent of young people) this is not reflective of the advertising opportunity. The content is undoubtedly great but unless they are monetising all of it, the scale is limited.”
Medialab Group’s Jonathan Manning also raises the difficulty of assessing the commercial value of the Netflix customer. “The ad-supported base only represents 9.5 percent of all households and 16 percent of all Netflix households, and we still don’t know who they are beyond this aggregate number.”
However, the agency leads praised Netflix’s involvement in Barb; the streaming firm has said it will provide metrics for UK ad campaigns starting in September. And the company has announced that the ad tier now accounts for 40 percent of new sign-ups, which the buyers see as a sign that the offering is moving in the right direction.
“The fact they will be Barb measured from September is really exciting,” said the media planner. “We’ll then be able to truly understand the incrementality their limited scale can deliver.”
Hit Man
Meanwhile the nature of streaming content poses challenges from a planning perspective. Although Netflix delivers hit shows, these cannot be forecast according to the most-watched viewing slots of linear TV, and cannot deliver impacts outside of the intended audience. During the first half of 2024, Netflix titles appeared 24 times in Barb’s weekly most-watched shows, out of a total 1,300 entries.
“From a planning point of view, it becomes hard for us to integrate their reach curves into any of our planning tools,” comments Sam Olive, Head of Video at Wavemaker. “Because their reach is big show, big show, big show, if you’re advertising on that channel between big shows, what does your reach look like? Whereas linear TV still has its spikes, but there is still a baseline of scale that runs consistently throughout.”
That said, Channel 4 titles only appear 36 times in the Barb rankings, and most TV channels do not necessarily need to deliver hit shows to attract ad spend.
“They just get relatively consistent viewing numbers that fluctuate seasonally, and that’s kind of what Netflix does,” says the agency executive. “So I don’t think that causes a problem from an advertising point of view, especially against younger audiences, where they do have a niche. But they need to come to the table and work commercially to open that up.”
And Netflix has opened up its inventory to more demand-side platforms (DSPs) in the US, with private marketplace deals now available through The Trade Desk, Google DV360 and Xandr. The company also announced it has closed its second year of Upfront negotiations in the US, including securing deals around its upcoming live sporting events.
But the same agency exec argues that the TV landscape in the US is considerably different to the UK, where Netflix is competing for ad spend against free commercial broadcaster channels and their BVOD services.
“They expected things to go the way that it goes in the US, where there is no free-to-air VOD service that people can access,” he says. “So in the US they suddenly are the scalable partner with whom you can access really top-notch premium content.”
One Day at a Time
In all markets however, Netflix faces fresh competition from Amazon Prime Video, which introduced ads this year – and rather than giving users the option to pay for a cheaper ad-supported tier, Amazon introduced ads to its default plan, effectively converting all its users to ad-supported customers. According to Barb, 13.7 million UK households subscribe to Amazon Prime Video.
“That kind of stole Netflix’s thunder, because it dwarfs their scale,” comments Wavemaker’s Sam Olive. “And in my personal opinion, I worry that the way that Netflix have framed the ad tier is damaging to advertising; essentially what it’s saying is you’re watching advertising as penance because you won’t pay full price for Netflix.”
Amazon also claims to have a relatively light ad load, and the buyers agreed that the overall proposition gives Amazon an advantage over its SVOD rival.
“I think Amazon have played their hand incredibly well every step of the way,” said the agency executive. “They’ve got huge scale, they’re not inundating users with ads, they’ve got good pricing structure, and crucially, they’ve got swathes of data that can power a lot of really interesting targeting capabilities. So I think Amazon are front and centre.”
But while Amazon has had years to establish itself as an advertising giant, Netflix is still new to advertising. And as the most-watched SVOD service in the UK, accounting for over half of total SVOD viewing in 2023, its progress on the ad front is being welcomed by advertisers.
“I’m sure they’ll find their feet and it will become part of our video day,” says Sam Olive. “At the moment, it’s still in its infancy. We’re talking less than two years this has been a commercial opportunity. And the scale is growing rapidly. But it needs underlying research studies that have taken place, it needs a solid bank of econometric research to show how it’s impacted advertisers, it needs that baseline of constant commercial impacts for us to be able to plan accurately. It will get there.”
