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Netflix Advertisers Clamor for Fledgling Ad Tier to Grow Faster
Streaming leader had fewer than one million U.S. subscribers on its ad-supported plan as of March
By
Suzanne Vranica and
Sarah Krouse
Updated May 17, 2023 6:01 pm ET
Netflix has a larger base of subscribers than any other streaming service globally. But as it made its first major presentation to Madison Avenue, it remained among the companies with the smallest pool of customers paying for an ad-supported version of its service.
“We have a long way to go to build scale in advertising,” Netflix Co-Chief Executive Ted Sarandos said on Wednesday during a virtual pitch to advertisers. Netflix plans to change the future of ad-supported streaming, and advertisers that work with the company can help shape it, company leaders said.
As of March, Netflix’s $6.99-a-month ad tier had 937,616 U.S. subscribers in March, while
Disney+’s ad-backed plan—
which debuted a few weeks after Netflix’s November debut—had 863,791, according to subscription-analytics firm Antenna.
Netflix is competing for major advertisers’ dollars with rivals that have been in the ad business far longer and have larger ad-watching subscriber bases. Disney-controlled Hulu, for example, had 20 million ad-tier subscribers in the U.S. in March, while NBCUniversal’s Peacock had 15.5 million such customers, Paramount+ had 10.7 million and
Warner Bros. Discovery’s HBO Max had 3.6 million, according to Antenna.
More than a quarter of new customers signing up for Netflix choose the ads plan in the dozen countries where it is currently available, the company said during Wednesday’s presentation.
Netflix also said its ad tier had a global monthly active-user base of nearly five million—a number that includes members of the same household who watch it using different profiles (Netflix allows up to five profiles per account). It didn’t say how many subscribers the Netflix ad tier had, but said the number had more than doubled since earlier in the year.
Executives at Netflix focused on its ad business have been on a roadshow in recent weeks trying to drum up business in advance of its first-ever presentation to advertisers on Wednesday.
The company
decided to make Wednesday’s presentation virtual because its New York event at the Paris Theater near Central Park was likely to be disrupted by protesters participating in the Hollywood writers’ strike. Members of the Writers Guild of America marched outside New York’s Radio City Music Hall during NBCUniversal’s Monday morning presentation.
Advertisers have lauded Netflix’s foray into ads because it could give them the ability
to reach a subset of the population that they had been shut out from reaching for years before ad-supported versions of major streaming services launched.
But some ad buyers have been frustrated by the small size of the
Netflix ad tier’s subscriber base because it doesn’t allow them to run as many ads as they would like or effectively target specific groups of subscribers, ad buyers said. Some have urged Netflix to advertise the offering more broadly to raise consumer awareness, they said.
Advertisers in the U.S. will soon be able to have more choice in where and when their ads run, Netflix said at Wednesday’s event, such as in the top 10 most watched shows and films, around holidays or at the start of episodes.
Netflix has told advertisers that viewers of the ad-supported tier skew younger, that engagement is on par with ad-free viewing and that there is an 86% overlap between the lists of the top 10 titles on the ad and ad-free tiers, according to people who attended the pitches and materials distributed to advertisers in recent months that were reviewed by The Wall Street Journal.
The company said on Wednesday that the median age of the ad tier’s monthly active users was 34.
The subscriber base of Netflix’s ad tier in the U.S. in March skewed white, female, married and without children, Antenna found.
Antenna compiles data from
third-party services that collect information from consumers, with their consent, such as online purchases, bills and banking records. That gives the company visibility into streaming subscriptions. Antenna’s data don’t capture promotions or wholesale deals such as subscriptions offered by wireless carriers, and might differ from what companies disclose.
Disney disputed Antenna’s numbers.
Other ad buyers have held back from buying a significant amount of inventory because
Netflix’s ad prices remain at a premium compared with other ad-supported streaming services. Advertisers are paying between roughly $45 to $55 for reaching 1,000 viewers, which is higher than most other streaming platforms, some of the buyers said.
Netflix executives have said they are pleased with the early performance of the ad business. The average
revenue per user Netflix makes from its ad tier in the U.S. is higher than that of its $15.49 standard plan, the company said.
The company capped the number of ads shown per hour and launched the offering with a limited number of advertiser partners. Netflix has said it is taking a “crawl, walk, run” approach to building its ad business, and Chief Financial Officer Spencer Neumann said on Netflix’s April earnings call that the company hoped to move from the “crawl” to “walk” stage this year.
Because
Microsoft, Netflix’s ad partner,
is providing Netflix with a guaranteed amount of revenue in the event it doesn’t sell as many ads as expected, Netflix executives feel they have time to build their business and continue to ask for high CPMs, or cost per thousand impressions, people familiar with the matter said.
Netflix and many of its rivals offer ad-supported tiers of service as a way to bring in fresh revenue from ad sales and attract cost-conscious customers. The ad tier could get a boost in the coming weeks when Netflix extends
its password-sharing crackdown to the U.S. and more countries globally.
Netflix in February began to limit sharing in Canada and Spain, two markets where its ad tier is sold, and the company said some sharers there started their own subscriptions on the lower-cost ad plan.
Netflix to date has run digital ads touting the lower-price offering, and changed its new customer sign-up page so that its $6.99 ad tier is visible as the lowest-cost plan instead of its $9.99 basic ad-free plan.
It recently improved the viewing quality on the ad tier to make it more appealing, and allowed up to two devices to use an account simultaneously instead of just one.
In recent months, the company has increased the volume of content available on the ad tier. At launch, it said the shows and films on the ad-supported tier represented 85% to 90% of viewing on Netflix, and in April the company said a new set of licensing deals meant the plan now has about 95% “content parity globally” by viewing time with its ad-free plans.
Illumination films from the Minions franchise and Universal movies such as “Dracula Untold” and “Endless Love” are among the titles that are now available but weren’t at launch.
