Netflix has long been the go-to streaming service for those who want to watch TV shows and movies without commercials. However, the company announced earlier this year that it would be introducing a new ad-supported tier in an effort to bring in more revenue. While some advertisers were initially on board with the new plan, many are now jumping ship and instead choosing to buy ads on Netflix’s competitors, like Amazon and Disney. So, what’s behind this mass defection? Let’s take a closer look.
Advertisers have been hesitant to jump on board with Netflix’s new ad-supported tier for a few reasons. For one, the platform has yet to release any concrete details about how its ad system will work. Will ads be limited to during breaks in between episodes? Will they be unskippable? And perhaps most importantly, how much control will brands have over where and when their ads appear?
Netflix has yet to answer any of these questions, which is why many advertisers are still sitting on the sidelines.
One buyer told Insider.com that Netflix’s projection of having between 400,000 to 1 million targetable viewers nationwide at launch is not as valuable as the $60 CPM (cost to reach 1,000 people) that Netflix is demanding.
“Do I really need to spend a premium to reach a maximum of 1 million people?” this ad buyer said. Another ad buyer agreed that the number of potential viewers is not as important as the quality of those viewers, noting that “a more targeted and engaged audience is worth a lot more than a wider but less engaged one.”
However, many buyers acknowledged that Netflix has a lot of data on its users that could be useful for targeting ads, and said they would be open to working with the streaming service if the price was right. For now, it seems that ad buyers are still on the fence about whether Netflix’s new ad-supported plan is worth the cost.
Another big concern for brands is reach. While Netflix boasts a huge subscriber base of over 200 million users worldwide, the vast majority of those users are only signed up for the platform’s ad-free tier. In other words, advertisers could be paying top dollar to reach a very small portion of Netflix’s total audience. On top of that, it’s still unclear how effective ads will be on the platform given that users can simply pause or fast-forward through them at will.
According to recent estimates, Netflix is on track to generate $1.7 billion in net ad revenue in the US by 2025. While this may seem like a lot, it’s actually just a drop in the bucket compared to the overall US linear and connected TV ad market, which is projected to reach $99 billion by that time.
Now, let’s look at the second part of the answer: time spent watching TV. According to Nielsen, the average American watches about 4 hours and 3 minutes of TV per day. But how much time do they spend watching Netflix? A recent study from Hub Entertainment Research found that Netflix subscribers spend an average of 2 hours and 12 minutes per day streaming content on the platform. That means that even if every single one of Netflix’s US subscribers watched ads (which they don’t), they would still only see about one-fifth as many ads as they would if they were watching linear TV.
According to recent estimates, Netflix is on track to generate $1.7 billion in net ad revenue in the US by 2025. While this may seem like a lot, it’s actually just a drop in the bucket compared to the overall US linear and connected TV ad market, which is projected to reach $99 billion by that time.
For now, it seems that many brands are content to wait and see how Netflix’s new ad-supported tier shakes out before committing any money to it. And given the concerns that have been raised so far, it’s not hard to see why. Until Netflix provides more information and assurances that its ad system will be effective, many advertisers will likely continue to steer clear of the platform.
