By Jared Lake, SVP, Head of Media Investments at Ocean Media
Streaming services are valued based on their number of subscribers or subscriber growth, and AVOD is a very blunt instrument to get subscriber numbers up. The question for Netflix is how much of their existing subscriber base in the U.S. will opt-in for this new tier.
While there is opportunity for Netflix to acquire new users in the U.S., meaningful scale for advertisers will have to come from existing subscribers changing their plans.
From its beginning in 1997 as a DVD mail-order subscription service to its foray into streaming in 2007, Netflix now boasts 75 million subscribers in the U.S. and Canada, the largest user base of its 222 million subscribers in any market. Despite $30 billion in reported revenue as of 2022 and an expectation to add another two million subscribers this year, Netflix instead lowered prices in certain global markets (India) and has lost subscribers since 2020 but overall, that number is still at a high in 2022.
Netflix currently offers three tiers of subscriptions and the prices vary ($9.99, $15.49, $19.99) depending on how many devices on which viewers want to access content. The AVOD version will come in at the lowest price, not yet announced.
A Netflix AVOD option is good news for everyone: Brands, media buyers, viewers and the streaming marketplace as a whole.
The most important considerations for media buyers will be price, transparency, data, targeting and content.
Media buyers and brands will require transparency in delivery. They don’t want to hear that I bought Netflix and spent X amount of dollars. They want to know what content their impressions ran in and how much of that represents the most popular content at the time of delivery. They want to know which high-value audiences the ad reached. Transparency on delivery is essential to give brands confidence that they are getting value in a Netflix buy.
Netflix is a tech company at heart and having gotten into the streaming game so early, its strongest opportunity in AVOD is in data, more so than their competitors.
Media buyers must ask, “What data are they making available to support targeting?” Will it be behavioral data around past viewership or will they allow advertisers to leverage its very robust deterministic data set from viewers who have logged in and segmented by different profiles in a household?
To be able to serve targeted ads based on profiles within a household is compelling to advertisers and buyers. We can home in on the moms in every household, the dads and all the kids. The other guys are not there yet. Netflix is miles ahead on theoretically having very robust household data, that’s broken out by individual members of household. It’s the ultimate first-party data play.
Which brings us to content.
To date, Netflix’s strategy has been one of content volume over content quality. It launches a plethora of new content with an eye toward keeping viewers in its ecosystem. Quality-wise, it had little competition until the past five years.
Newer entrants into the marketplace, such as Apple TV, Hulu, Disney+, HBO Max and Roku, are nipping at its heels with dazzling content; Disney+ had The Beatles documentary “Get Back,” last year, HBO Max has Batman and Superman and Apple TV has “Ted Lasso.”
Besides Apple TV, other streamers already have ad-supported subscriptions. Netflix has to get in the game because viewers have too much choice and are at a point where they must make decisions from a cost perspective. By lowering price points, streaming services have a better chance of staying in that consideration set and maintaining a subscribed household.
An AVOD model gives Netflix opportunities to add incremental users and generate advertising revenue. Maybe a significant number of subscribers are on the verge of cancelling Netflix but instead will opt for the AVOD model.
Free, ad supported services, like Pluto TV or YouTube have pretty substantial scale, with 68 million and 2.6 billion global active users, respectively. Consumers are flocking toward them because they’re free and have pretty decent content, such as old TV shows and movies, and there is value there.
The reality is that Netflix will likely attract media spend that would have otherwise been destined for other AVOD services, cable and broadcast.
A Netflix AVOD will also have a major impact on pricing—for media buyers and viewers within the overall marketplace. The added inventory will make cpm’s more competitive, and viewers will have more content choices at lower costs.
Ideally, they scale rapidly, become a serious player in the advertising marketplace, and make everything cheaper.