The stranger brands and advertising on Netflix

By Chris Pash | 12 July 2019

Major brands are already getting major exposure on Netflix despite the platform’s apparent reluctance to open the video on demand (VOD) platform to advertising.

A study of Season 3 of Stranger Things shows placement within the storyline of 45 products, including Coca-Cola and Reebok, to the value of $US15 million.

Concave Brand Tracking, which studied all eight episodes, says the advertising value of the number one brand -- Coke  -- was $US1.5 million.

“The final episode had the most brand visibility while the first episode had the least,” says Concave Brand Tracking.

“Coca-Cola and Cadillac were the most visible brands in two episodes each.”

Netflix has confirmed it has made 75 placement deals with brands.

Among the placements was New Coke, heralding the style introduced in 1985 and then withdrawn after a consumer backlash. Limited supplies of the New Coke sold quickly in Australia.  

Netflix has so far rejected the idea of straight advertising but the prospect has been widely discussed in the industry.

Analysis by Nomura-owned Instinet calculates Netflix could pick up high margin revenue of more than $1 billion a year, about $700 million of that net, or after cost, revenue. That would grow to $1.3 billion 2021.

Advertising could reduce reliance on debt to fund content creation at netflix. The company raises $2 billion every six months to fund its ongoing investments in content.

“Netflix has been taking steps recently to monetise its IP in ways outside subscription plans, including product placement and licensing its Stranger Things franchise to two video game releases,” analysts Mark Kelley, Andrew Marok, and Ryan Bressner write in a note to clients.

“We think the opportunity exists for the company to expand these channels, leading to potential revenue.”

An increasing number of media executives believe the lure of ad-supported content could make it too difficult for Netflix to continue to resist. The platform woudl be an attractive one for brands to reach customers. 

However, the analysts believe an ad-supported Netflix is unlikely until 2020 at the earliest.

Hulu’s model could be a good example of what to expect should Netflix adopt advertisements.

In the US, Hulu’s ad-free version of its platform is $US11.99 a month, or $US1 less than Netflix’s standard streaming plan at $US12.99.

Hulu’s ad-supported option is $US5.99 a month compared with Netflix’s basic plan at $US8.99.

“In our analysis, we assume Netflix would offer a free version of its ad-based tier, although we believe this would likely prove conservative,” the analysts write.

Netflix also faces increasing competition with new services from entertainment giant Disney and tech powerhouse Apple.

“We are not suggesting that Netflix will launch an ad-supported offering in the near term, or even at all,” say the analysts.

“Our analysis indicates that, should Netflix offer such a plan, an ad-supported tier could drive meaningful free cash flow.”

Netflix has about 70 million domestic US subscriptions. The analysts estimate 180 million to 190 million people who may be interested in a free tier.

According to Netflix, subscribers inn 2017 were watching 140 million hours of content a day or an average of 1.2 hours per subscriber.

That’s a lot of hours to insert advertising, assuming five minutes of ads per hour, compared with 14 to 16 minutes for traditional TV.

“We think that, over time, Netflix would be able to command premium ad pricing, due to its broader subscription base,” say the analysts.

Meanwhile, Netflix’s experiment with product placement in its in-house content is working.

The top 10 products, according to Concave Brand Tracking, appearing in season 3 of Stranger Things can be found here.

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