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How Netflix Will Transform Brand Marketing

Netflix has long since been opposed to the idea of advertising, but the future of streaming dictates a different path moving forward. Will Netflix follow in the steps of Hulu or remain free of advertising?

Over two years ago, I correctly predicted that Amazon would transform the advertising world. Watch out…Netflix will produce the next sea change.

As we move to data-driven, personalized marketing, it was obvious to me that the data assets of Amazon would instigate a new segment of “retailers as adtech”. Who could have better assets to drive performance marketing? And, since my prediction, Amazon ad revenues have grown from a little over $2 Billion to being north of $10 Billion, and likely to continue rapid growth.

Netflix will lead the next disruption in the advertising/media landscape, focusing on the other side of the marketing equation…brand building.

Netflix Would be an Advertiser’s Dream…

  1. Brand marketers are thirsting for a powerful, proven way of using digital to drive brand that can balance off the rush to performance marketing. Netflix knows more about hundreds of millions of people’s individualized entertainment interests than anyone else…this creates the opportunity for data-driven personalization to address the right brand-building narrative to the right person. And it’s totally cross-device.
  2. Because all their media and ad serving are trackable at a user level with matchable IDs, they can prove lift as well as anyone else in the addressable world.
  3. Their subscriber base in the US is about 50% of TV viewing households so there is a great potential for delivering reach.
  4. They claim viewers in well over 100 countries so they offer a global media choice based on individual profiling…just like Google, Facebook, and Amazon.

Now, what’s in it for Netflix? At a time that their U.S. subscriber growth is starting to stall (and stock price down 25% from its high), offering advertising has the potential to DOUBLE or TRIPLE their annual profit of about $1.2 Billion (2018). Why? Assume Netflix adopts the same ad load as Hulu (i.e. a highly palatable 10 minutes/hour), assume 70% of subscribers opt for the lower ad-supported subscription price (what is reported about Hulu). Netflix reports the average viewer watches 2 hours/day on Netflix (although they don’t say how many users that is daily). Let’s also assume a $40-50 CPM per 30 seconds (highly reasonable in today’s addressable video environment). Working out the math, that offers a great revenue boost, and, this should be a 50% margin revenue. How can they not make this move at some point in the not too distant future?

New Media Channels

What would happen to the advertising landscape? Marketers might begin to think of media this way…

 

When marketers look at advertising channels this way, they will realize that it maps to the stages of the journey/funnel. They will budget for each channel adding substantial ad investment to some newer players.

Media companies will create and reinforce ad products that put them in new channels so they can compete for more ad dollars.

Media research companies will realize that there is a substantial opportunity to develop new measurement services that align to this new channel structure. Right now, we could not measure reach and frequency for any of these channels, let alone across them.

Netflix says it won’t offer advertising. MediaPost agrees. Yet, CNBC and Marketwatch say it is inevitable. At some point, Netflix will want to take another subscriber rate hike and they will offer ad-supported access at the old rate, creating a two-tier structure. Consumers will accept it because their original content is so binge-able and it is a now-familiar pricing structure.

And if Netflix does not do this, Amazon Prime will.

 

This article was originally published on Joel Rubinson’s Blog

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