Netflix in Ad-Related Hot Water

If there’s one thing we can say about 2022 for certain, it’s that it hasn’t been Netflix’s year. After a catastrophic stock plunge in the middle of the year, related to subscriber losses, they managed to regain an upward trend on the back of their announcement of forthcoming ad-supported tiers. And now we’ve seen them roll out, it seems the company has another headache brewing. Entertainment attorney with Blake & Wang P.A, Brandon Blake, takes a look at the latest issues facing Netflix. 

Failed Viewership Targets

Last week we saw the beleaguered Netflix stock take another severe hit after it was announced that the new ad-supported tier is not living up to promised viewership targets. It has been suggested that Netflix has allowed a claw-back for advertisers on ads that have not yet run, based on meeting only about 80% of promised audience figures. 

On launch, the ad-supported tier, whilst limited with some missing programing due to licensing agreements, was expected to deliver up to 5 minutes of adverts each hour, with ‘hundreds’ of advertisers having sold out their ad inventory. 

In itself, however, this isn’t necessarily bad news. Rather, we would have expected it from a format in its infancy, and it is highly likely that subscriber numbers for the AVOD tier will grow with time. After all, the service has only been offered for 6 weeks. It could take a few years to reach a compellingly large user base. Additionally, Netflix expects to refine its ad targeting with time, too. So is this a case of advertisers expecting too much, too soon? It well could be. Advertisers have been keen for a slice of the Netflix brand pie for years now, and jumping ship after a mere few weeks does seem slightly shortsighted.

Why Guarantees?

One can, however, mention that offering viewership guarantees on a product still in its infancy wasn’t Netflix’s smartest move, either. Of course, the wider world of digital marketing is hardly new at this point, and advertisers have come to expect such guarantees in order to seal the deal on their advertising spend. Netflix offered their initial ad deals as ‘pay-on-delivery.’ with the product to be delivered being the eyes of its watchers. While some advertisers have opted to play the long game and simply roll that money over into the first quarter of 2023, they have lost out on seasonal advertisers who have no interest in longer-term horizons. 

Additionally, some ad-focused agencies believe Netflix didn’t spend enough time or effort marketing their new tier to subscribers, instead choosing to hyper-focus on onboarding advertising partners. For a new product, some level of focus on the end-user is certainly a necessity. Entering the AVOD pond with industry-leading costs ($65 per 1000 impressions) was likely not the best route for a new service, either.

However, advertisers still see the power of the Netflix brand, and it is hardly as if the ad-supported tier is a failure. It simply needs time to build the sort of momentum that will keep eyes on advertiser’s products, and there’s no indication that they won’t get there with time. Yet again, however, it is hard to see this as anything but another Netflix rush job without the thought needed to truly sustain it. It will be interesting to see how the 2023 year develops for them. 


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