In November, Netflix unveiled its long-awaited ad-supported tier that gives customers in select markets, including the US, the ability to offset the cost of a Netflix subscription by having their viewing interrupted by commercial breaks. At the Consumer Electronics Show in Las Vegas, Netflix President of Worldwide Advertising Jeremi Gorman gave an initial insight into how the product has performed as well as the streamer’s future plans.
During an interview at Variety’s Entertainment Summit at CES, the executive said the company has been pleased with the debut lineup of advertisers and their diversity.
“It’s really across the board,” Gorman said of the different brands participating. “We see CPG companies, luxury companies, automotive companies …[and] retail. We see a wide swath.” This is also good for the consumer experience, she noted, as it means viewers won’t get bored with one car ad after another. “There’s a wide variety of advertising types, and I think we’ll continue to see that,” Gorman predicted.
The interview also touched on some of the early complaints and concerns surrounding Netflix’s foray into advertising.
Chief among them is the blowback the company has received over its high ad rates, asking for what one industry executive called “Super Bowl CPMs.” However, Gorman justified the prices, but admitted that the market will ultimately dictate what kind of price Netflix will be able to get.
“From a supply-demand perspective, the premium CPMs reflect two things: one is that we just couldn’t take that many advertisers. We certainly didn’t want to disappoint anyone. Secondly, the premium content environment that the ads are running in, I think guarantees a high CPM.”
Whether Netflix constitutes a “premium environment” is of course up for debate. But Netflix seems to be adjusting its expectations.
“I think we’re certainly humble enough to understand that we’re the top of the market, and in addition to that, the market will more or less dictate to us what are reasonable CPMs,” Gorman said.
Another concern with Netflix’s ad-supported service has to do with what content may contain ads. Since the streamer was not set up as an ad-supported service to begin with, many of its content deals did not include AVOD (advertising video on demand) rights. That means Netflix has limited ad inventory, and couldn’t even run ads against some of its own “Netflix Originals” if the deals didn’t include the right rights.
Gorman also addressed this, saying that Netflix was actively working on the licensing issues.
“It is developing, as we speak, day by day. We’re renegotiating deals we made a long time ago,” she said, adding that the “vast majority” of content that people see regularly is available at the ad level. Meanwhile, Netflix has about 85% to 95% of its content available at the ad level, Gorman said.
Then there’s the real concern that, from a business perspective, offering a lower cost tier has the potential to cannibalize Netflix’s existing subscriptions as customers drop to cheaper tiers at a faster rate that isn’t offset by growth in ad tiers. However, Gorman downplayed concerns that Netflix customers have historically stuck with their current plan.
Unfortunately, the performer couldn’t talk about the uptake of the ad-supported product, as Netflix is ready to announce revenue, but said “we’re happy with the growth we’re seeing.”
Currently, Netflix’s ad tier is available in the US, UK, France, Germany, Spain, Italy, Australia, Japan, Korea, Brazil, Canada and Mexico. The company has no immediate plans to expand, but in the longer term will aim to target any major advertising market. In addition to ads, subscribers to the Basic with Ads plan must deal with lower video quality (720p HD) and are limited to streaming from one device. They also cannot download content to their devices for offline viewing.
Going forward, Netflix aims to do a little more than just run typical ads, including things like dynamically inserting ads near moments that are relevant to marketers, sponsoring single shows, and more. It will also later allow marketers to target ads by age and gender.