Media agencies say Netflix's ad-supported tier is working for them

Jason Pollock
By Jason Pollock | 26 March 2024
Source: Venti Views via Unsplash

Media agencies are increasing their use of advertising on Netflix, seeing opportunity to connect brands with premium content, as audiences grow nearly 18 months into the streaming platform's ad-supported offering.

With the model growing 70% in the December quarter, 70% for the quarter before and then 100% the quarter before that, ad-tier subscriptions currently account for about 40% of all new signups where the option is available.

Although not confirming specific numbers, industry sources told AdNews that Netflix works with hundreds of advertisers in Australia across all major categories with plans to continue to partner with a variety of both agency and client-direct partners.

Netflix's president of advertising, Amy Reinhard, told attendees at the Variety Entertainment Summit in January that the streaming giant recently eclipsed 23 million global monthly active users on the ads plan, with more than 85% of those streaming on the platform for two hours or more per month.

Overall Netflix has a record 260.8 million paid subscribers, up 13.1 million in the December quarter. 

In Australia, the Media Store’s programmatic director, Annie Marendaz, said the media agency ran a small test in November  for one of its clients with a campaign objective to maintain brand awareness while also acquiring new customers.

SVOD was introduced to support our overall screens buy and extend reach from traditional TV and BVOD for light TV viewers. Netflix was a great fit to reach our affluent and mortgage family audience,” she said.

Kinesso chief media officer Michael Whiteside said  the strategic appeal of what was perceived as an unreachable SVOD audience piqued the interest of brands Kinesso works with.

“Ad-funded access to Australia’s largest SVOD service promoted optimism of incremental audiences – still in growth post pandemic lockdowns – whilst increasing competition in the screens landscape,” he told AdNews.

“The cinematic content produced for appointment viewing and co-viewership, aligned with client ambitions to capture consumer attention and establish product messaging, saw many [clients] investing throughout the launch.”

Havas Media Network Australia’s is actively using Netflix across some of its brands.

“Our approach involves exploring the ever-increasing video on demand (VOD) space, and we recognise the value of reaching diverse audiences while tailoring our brand messaging effectively,” said Kevin Fernandes, national head of partnerships and adtech.

“Netflix's ad tier provides an excellent platform for us to engage with viewers who are already immersed in high-quality content, allowing us to align our brands with relevant programming and ensure our messages resonate with the right audience segments.

“The flexibility and reach of Netflix's platform align well with our strategy of leveraging additional digital channels to enhance brand visibility and connect with consumers in innovative ways.”

Fernandes said Netflix's entry into advertising represents a new frontier with limited competition compared to traditional large screen highly viewable advertising channels.

“This unique positioning allows brands to differentiate themselves and potentially increase their market share by tapping into a novel advertising avenue,” he said.

“One of the major strengths of advertising on Netflix is the opportunity to associate brands with premium content.”

He told AdNews that Netflix is renowned for its high-quality original shows, movies, and documentaries, providing advertisers with a premium environment to showcase their products or services to a captivated audience. 

“Advertisers can also benefit from some of this audience who do not view free to air TV by delivering targeted and impactful ad campaigns that resonate with these viewers, leading to better brand recall and engagement metrics,” he said.

Although not broken down by spending per specific streamer, ACMA reported that SVOD providers spent $324 million on Australian programs in the 2022–23 financial year,

For Netflix, this included adult drama Boy Swallows Universe, children's drama Eddie's Lil' Homies and documentary ONEFOUR: Against All Odds.

Kinesso’s Whiteside said that a connection to about 86% of Australians watching SVOD services (according to Kantar) has mostly eluded brands until Netflix's ad-funded model, which now offers the benefit of engagement with a younger demographic across professionally produced content. 

“Whilst consumer adoption remains gradual, Ampere research suggests 40% of consumers would consider switching to the Netflix ad-tier, which aligns with the percentage of new account subscription,” he said.

“This will increase scale of consumer access within an environment designed to maintain user magnetism through a polite ad-load and considered frequency management, in-turn elevating brand impact and message retention. 

“Although ad adjacency is unique to product integration, Drive to Survive for F1 affinity and The Queen’s Gambit for chess set sales are clear examples of the impact Netflix alignment offers to ignite culture and drive commerce.”

Kinesso said that gradual consumer adoption of the ad-tier model has presented scale limitations, which subsequently prevents practical application of targeting parameters.

"Whilst the selectivity of Top 10, Demo, Geo, Genres, and Search Intent enhance relevance, application requires consideration against scale-based goals," he said.

"Equally, whilst demographics, search intent and web activity filters are gained from platform alignment, this also presents operational considerations due to platform access. 

"Increased scale allowing for targeting application and incrementality measurement will see further adoption of Netflix within brands screens investment strategies." 

UM Australia’s head of media partnerships for Melbourne, Michael Mellington, said that when Netflix announced an ad supporter tier, the market was abuzz with anticipation.

“Premium content, large audience base and significant time on platform - what more could you want as an advertiser? However, the reality in the early days was a different story,” he said.

“With a lack of consumer-facing messaging announcing the tier change, awareness was low and viewers were slow to make the shift to the ad supported platform.”

Mellington said that for the “lucky few brands” welcomed to the platform, client conversations around inventory challenges likely followed, along with challenges around targeting opportunities due to the lack of eyeballs.

“While this sounds negative - and competitor streaming services have benefited from a refined go-to market [strategy] - Netflix’s future is much brighter,” he told AdNews.

“With optimistic roadmaps including category-specific enhancements, geo-targeting, genre, first impression, Top 10, improved creative durations and more, advertisers will have many more options to consider.

“Netflix’s current ad-funded audience is also growing putting them in a more attractive bucket, not dissimilar to Binge's ad-supported tier.”

Marendaz said that at the time of The Media Store’s test in November 2023, the media agecy had to run via Xandr’s demand side platform (DSP) instead of setting up programmatic guarantee deals for its preferred DSP. 

“Compared to other SVOD providers, Netflix also has a higher CPM and there are additional costs around genre and demo targeting,” she said.

Havas’ Fernandes said since Netflix is a subscription-based service, it has a finite user base, which may limit the potential reach of advertising campaigns and impact brand growth strategies that rely heavily on reaching a wide audience to drive awareness and sales.

“Netflix's advertising pricing and targeting capabilities can be challenging for brands, especially when compared to other platforms in the BVOD or SVOD space,” he told AdNews.

“Another potential challenge is the limited metrics available for measuring the success of investments across Netflix; currently, advertisers primarily rely on completion rates or engagement metrics within the Netflix platform to gauge campaign effectiveness.

“This lack of comprehensive measurement tools, such as detailed audience insights or attribution models, can hinder the ability to evaluate the full impact of advertising efforts.”

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