Despite the challenges, Netflix says its ad level is doing well • businessroundups.org

In November, Netflix unveiled its long-awaited ad-supported tier that allows customers in select markets, including the US, to offset the cost of a Netflix subscription by having their viewing interrupted with commercial breaks. At the Consumer Electronics Show in Las Vegas, Netflix President of Worldwide Advertising Jeremi Gorman gave an initial insight into how the product has performed and the streamer’s plans for the future.

During an interview at Variety’s Entertainment Summit at CES, the exec said the company was pleased with the debut roster of advertisers and their diversity.

“It’s really across the board,” Gorman said of the variety of participating brands. “We see CPG companies, luxury companies, auto companies…[and] retail. We see a wide strip.” This is also good for the consumer experience, she noted, because it means viewers won’t get bored with one car ad after another. “There’s a wide variety of ad types and I think we’ll continue to see that,” Gorman predicted.

The interview also addressed some of the early complaints and concerns about Netflix’s foray into advertising.

Among them, the main pushback the company has received is due to high ad prices, prompting what one industry executive dubbed “Super Bowl.” CPMs.” However, Gorman justified the pricing, but admitted that the market will ultimately determine what kind of price point Netflix will be able to get.

“From a supply and demand perspective, the premium CPMs reflect two things: First, that we just couldn’t handle that many advertisers. We certainly didn’t want to disappoint anyone. And second, the premium content environment in which the ads are served, I think justifies a high CPM.”

Whether Netflix constitutes a “premium environment” is of course up for debate. But Netflix seems to be adjusting its expectations.

“I think we’re certainly humble enough to understand very well that we’re at the top of the market, and beyond that, the market will kind of dictate to us what reasonable CPMs are,” Gorman said.

Another concern about Netflix’s ad-supported service has to do with what content may contain ads. Since the streamer was not initially set up as an ad-supported service, many of the content deals do not include AVOD (advertising video on demand) rights. That means Netflix has limited ad inventory and can’t even run ads against some of its own “Netflix Originals” if the deals don’t include the proper rights.

Gorman also touched on this, saying that Netflix was actively working on the licensing issues.

“It is progressing day by day at the moment. We’re renegotiating deals that we made a long time ago,” she said, adding that the “vast majority” of the content that people regularly view is available at the ad level. In the meantime, Netflix has about 85% to 95% of its content available at the ad level, Gorman said.

Then there’s the real concern that, from a business perspective, offering a cheaper tier has the potential to cannibalize Netflix’s existing subscriptions as customers fall to cheaper tiers more quickly, which isn’t offset by ad tier growth. However, Gorman downplayed those concerns by saying that Netflix customers have historically stuck with the plan they currently have.

The exec unfortunately couldn’t speak to adoption of the ad-supported product as Netflix is ​​about to announce earnings, but said “we’re pleased with the growth we’re seeing.”

Currently, Netflix’s ad level is available in the US, UK, France, Germany, Spain, Italy, Australia, Japan, Korea, Brazil, Canada, and Mexico. The company has no immediate plans to expand, but in the longer term it would target a larger advertising market. In addition to ads, subscribers on the Basic with Ads plan experience lower video quality (720p HD) and are limited to streaming from one device. They also cannot download content to their devices for offline viewing.

Going forward, Netflix plans to do a little more than just run typical ads, including things like dynamically inserting ads near moments relevant to marketers, sponsoring a single show, and more. It also later allows marketers to target ads by age and gender.