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Netflix ad tier model sparks controversy among UK marketers

UK marketers are eagerly anticipating – and debating – all the unknown possibilities inspired by the November 3 release of a potentially game-changing advertising category model from Netflix.

As the streaming service makes fundamental changes to its infrastructure and includes advertising in its strategy – having recently registered with UK ratings agency BARB – these adjustments point to a more straightforward approach to how business is done. But will adding ads threaten operator efficiency in a market already riddled with oversaturation? How will this move affect its ratings?

Advertisers: Treat Netflix like the big screen

“With ad budgets hit by inflation and the UK weathering challenging political and economic times, Netflix’s launch of its ad product is a complex moment,” says David Muldoon, Vice President of Strategy Consulting at MediaLink. “But the advertisers’ interest is clear.”

Netflix’s expansion in advertising promises marketable opportunities as it provides audience segmentation according to genre, geography, and viewing preferences. The service says it will run for four minutes of advertising for every hour of content, with a limitation on how often ads appear. Movie trailers will be delivered in a 15-30 second pre-roll format and are relevant to the accompanying ad.

“This ad-funded experiment can become a nuisance,” says Dan Hulse, civil society officer at St. Luke’s Creative Agency. But maybe that’s what they want – forcing people to pay to hide ads? The smart alternative is to learn from the cinema. Brands that create ads for the big screen know that they contribute to the overall experience.”

Netflix’s dedicated audience in the UK is almost identical to terrestrial personalities, making it a desirable space for advertisers to tap into. “Brands have been keen on the Netflix audience and user experience for years,” Muldoon adds. “From trending burgeoning content consumption trends to creating unparalleled international reach through locally generated content, Netflix has built a premium customer experience and engaging audience in an age of unprecedented content abundance and scarcity.”

But translating this interest without spoiling it with advertisements will require careful wading. Marketers must be well aware of their viewing habits in order to deliver relevant content that supports Netflix’s creative standards — and to ensure that marketing efforts do not irritate users accustomed to ad-free advertising.

“In light of the cost-of-living crisis, this model is a welcome alternative for those looking to cut costs, without sacrificing life’s small pleasures,” says Alex Wilson, executive creative director at Amplify. “Older audiences are more patient with ads because of their upbringing with broadcast television, so they are less likely to alienate them as much as younger demographics. But the lower price point will help.”

Ultimately, Netflix will need to be careful with the ads they serve given the ad’s constant ingenuity and how quickly users can turn it off online. “Creative advertisers will be more successful with the form of advertising that Netflix offers,” says Brian Williamson, chief strategist at AMV BBDO. “Netflix understands the value of its audience’s time, and will not expose them to cheap, repetitive, unwanted videos. If the future of streaming ads is more like cinema than pop-ups on the web, this is a win-win for everyone.”

Wilson agrees, citing Netflix CEO Ted Sarandos speaking at Cannes 2022 where the CEO discussed creating ads tailored to Netflix content: “Creative opportunities for the industry will be built around IP addresses…think retro ’80s style ads before” Stranger Things,” sending simple attorney ads before “Better Call Saul” or a beer brand shot at Paddy’s Pub before “It’s Always Sunny in Philadelphia.”

Is it now time to invest in advertising?

Given the minimum ad spend of $20 million per slot, Netflix needs to prove its worth.
“Some second-tier ad buyers will say Netflix charges too much, but viewers and creative advertisers understand these costs,” Williamson says. “You get what you pay for: an audience of real people who actually pays attention for 15-30 seconds. Good advertisers know how to turn that attention into gold; it’s harder than ever to find real audiences of real people who pay real attention.”

An intentionally higher price tag will attract commitment from fewer major players, but it will put pressure on Netflix to get the advertising model right from the start.

However, brands are staying away from spending big on advertising, warns Heide Cohu, founder and CEO of Studio of Art & Commerce. “It has been shown to be less effective and marketers are willing to engage consumers in alternative ways,” Coho says.

“Innovative brands like Red Bull are increasingly developing entertaining creative ideas for television and entertainment formats and can share production and distribution costs with platforms like Netflix,” Coho explains. “Consumers are less tolerant of brands that spend large amounts of money on advertising. Ad-free advertising is attractive and there is a risk that consumers will choose other such platforms. Once they get a taste of it, it is hard to hold back.”

Netflix will accurately assess subscription and retention numbers with ad category roll out because, Williamson says, “they will be concerned about subscribers choosing the cheapest tier and will consider how ads affect average watch time.”

However, these are not the only metrics to consider. “Revenue and cash flow are an obvious key point as Netflix is ​​transitioning to an ad-supported model,” adds Wilson. “There was a lot of interest in missing subscribers earlier this year, but they saw a massive increase in the third quarter, so the focus has shifted.”

The focus now is on how well a broadcaster can focus on providing ad content that meets their offerings and whether they can be trusted to create a safe environment for advertisers. It is not clear what risk assessment Netflix undertakes to protect controversial content and how it navigates in diverse ad contexts, but Muldoon reassures: “As a new player in the ad providers ecosystem, you should not be underestimated. Their entry into the space provides more competition in the market, Which will stimulate more demand for media investment in CTV [connected TV] and accelerating the industry’s transition from linear to digital.”

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