Netflix Is Overplaying Its Hand in Rushed Ad Negotiations

Netflix Is Overplaying Its Hand Rushed
Cheyne Gateley/VIP+

With Netflix’s long-yearned-for entry into the ad market finally at hand, advertisers must be disappointed by what’s being offered so far.

Reports on the streamer’s negotiations with potential ad buyers indicate Netflix is looking to charge “a soft $65” to reach a thousand viewers, an industry metric called cost per mille (CPM). This is more than double the reported CPMs for streaming services like Hulu and Amazon Prime Video — which are both in the $20 to $30 range — and higher even than the high-end CPMs charged by HBO Max ($40 to $49) and Peacock ($38 to $44), according to Insider.

On one level, this makes sense. Netflix still has the largest subscriber base of any one streaming service and some of the most popular content currently airing. Advertisers, for their part, have certainly seemed eager to get into business with the streamer and its enormous audience. Netflix can hardly be blamed for setting a high price in response to high demand.

But in its scramble to launch its ad-supported tier as quickly as possible — Netflix now wants to begin rolling it out Nov. 1, to beat the December debut of ads on Disney+ — the streamer is overplaying its hand.

Netflix is entering the ad business in a less-than-favorable climate, as spending starts to slow due to a weakening economic environment. Amid a broader slowdown in the ad market, streaming video ad spending in Q2 was softer than expected, with MoffettNathanson now estimating year-over-year growth for the category at 29 percent, down from its earlier estimate of 44 percent.

A closer look at what Netflix is currently offering ad buyers reveals little else to justify the prices it’s requesting. While the $65 CPM figure is all but certain to come down — such is the nature of negotiations — the conditions Netflix is setting alongside that opening offer underscore the fact that the streamer is rushing into the ad business without a solid strategy or understanding of the market in place.

A company spokesperson told VIP+ in a statement, "We are still in the early days of deciding how to launch a lower-priced, ad-supported tier, and no decisions have been made. So this is all just speculation at this point."

Multiple reports, however, indicate that with the streaming space at large beginning to embrace a raft of new advertising innovations, including virtual product placement and increased targeting, Netflix is taking the opposite tack.

The streamer is reportedly planning to simply run traditional video ads before and during content, and with limited targeting capabilities: Ad buyers told The Wall Street Journal that the personalization Netflix offers is “less granular” than typical online ads. In other words, the streamer is asking for premium rates while not even offering competitive levels of ad tech out of the gate.

Furthermore, in typical Netflix fashion, the data it shares will be sparse, at least at first. There will be no third-party measurement of ads’ performance on the service, and Netflix is not currently able to provide reach and frequency metrics, Ad Age reported. When the ad-supported tier launches, then, advertisers will have a very limited and inadequate view of how many people are seeing their ads.

In short, Netflix is coming into negotiations asking for top dollar while offering the prestige of advertising on Netflix — and not much else.

Netflix’s prestige isn’t quite what it used to be, in the wake of the Great Correction earlier this year. The streamer’s still massive reach can’t be denied, but even the blockbuster success of “Stranger Things” Season 4 couldn’t stem the tide of bleeding subscribers, particularly in North America.

Meanwhile, its viewership in the past six months, per its weekly Top 10 charts, peaked at 74 percent of the high-water mark fueled by “Squid Game” last year. That peak was also down about 10 percent from the highs driven by hits like “Don’t Look Up” and “All of Us Are Dead” in the first quarter of 2022.

Advertisers will undoubtedly still want to get into business with Netflix, but the streamer’s tactics already seem to be dampening their enthusiasm: An ad buyer told Variety that brands are taking a “wait-and-see” approach, noting, “At anything above $20 [CPM], the feeling is, ‘Let’s let other advertisers wade into that pool first.’ ”

With this in mind, and given the current economic climate, it seems increasingly unwise for Netflix to be taking such a rushed approach to advertising. Perhaps after waiting so long to get into the ad space, the streamer can afford to wait a little longer.