Netflix is ​​finally open to ads. And after?

During a call Tuesday about its first-quarter 2022 results, Netflix executives said the company would start looking at how to bring advertising to its platform. The move overturns the company’s longstanding aversion to ads and comes after the streamer lost subscribers for the first time in more than a decade. Now Netflix could finally open up to advertising as it faces strong revenue growth headwinds and has seen its stock plunge nearly 30% since the April 19 earnings announcement.

“Those who have followed Netflix know that I have been against the complexity of advertising and a big fan of the simplicity of subscription,” said co-CEO Reed Hastings on the earnings call. “But as much as I’m a fan of that, I’m a bigger fan of consumer choice.”

An evolving market

Hastings said Netflix will be looking to figure out how to roll out ad-supported low-end plans over the next two years. The course correction comes just weeks after Chief Financial Officer Spencer Neumann said advertising was not currently in the company’s plans but appeared to open the door for change, warning, “never say neverThe abrupt change could reflect Netflix’s recognition that the streaming space it has dominated for years is changing and that the company needs to change with the times if it wants to remain a key player.

After years of growth, Netflix faces a panoply of problems that advertising could help solve. In a letter to shareholders, the company noted that the pandemic-related boost had masked underlying issues that are hampering growth, including increased competition from other streaming platforms and the high number of households that share accounts — a number that it estimates at more than 100 million. And although tough revenue results spurred the decision, experts have been pushing Netflix to embrace ad-supported video on demand (AVOD) for years.

“Netflix’s decision to offer an AVOD tier to retain and acquire subscribers is well overdue. Most of the major content players already offer an ad-supported tier or are moving in that direction,” said Marcella Milliet Sciorra , CMO of demand-side healthcare platform DeepIntent. in the comments sent by e-mail.

The move will put Netflix on par with rivals such as HBO Max, Amazon’s Freevee (the company’s recently renamed IMDb TV offering), and Disney+ (which has announced it will introduce an ad-supported tier later this year), and reflects growing consumer demand for cheaper, ad-supported content. According to a recent survey conducted by DeepIntent and LG Ads Solutions, two-thirds of CTV viewers in the United States would prefer to see ads if they could pay less for the service. It could also be attractive to advertisers who have followed consumers on CTV and AVOD channels.

“Ad-supported streaming has exploded in popularity due to growing consumer apathy towards paid subscription services,” said Vikrant Mathur, co-founder of AVOD platform Future Today, in comments by e-mail. “The entry of SVOD services such as Netflix into the ad-supported space confirms the opportunity this increase in viewership creates for publishers as well as brands, and should help accelerate the migration of budgets from linear television to streaming.”

Netflix’s introduction of ads could help marketers tap into a new supply of inventory, providing greater diversity and scale for CTV campaigns, Milliet Sciorra noted. It could also be a boon for the ad tech industry, as Netflix’s Hastings suggested the company could look to other vendors to deliver its ad experience.

“We can be just a publisher and have other people do all the fancy ad matching and bring in all the people data. So we can stay out of that and really focus on our members to create this great experience and then again getting monetized optimally by a range of different companies that offer this service,” he said on the earnings call.

The curtain falls on the first act

However, any Netflix ad-supported plan would come as the kind of data-driven advertising Hastings alluded to becomes increasingly difficult in a tightening data privacy landscape. Additionally, the delay in rolling out such advertising opportunities comes as Netflix’s data and algorithm advantage has been wiped out as conglomerates with deeper hoards of consumer data, like Amazon and Disney, have entered. in the streaming war. Netflix has only one point of contact with the consumer, and the launched a Two Thumbs Up feature suggests its data advantage is shrinking, according to Andre Swanston, senior vice president of media and entertainment vertical at TransUnion.

“They don’t have the data or the time to try to develop the targeting, measurement, attribution and identity resolution capabilities needed to compete. All of these capabilities can be leveraged from external vendors and partners. (just like most of their competitors already do). They just need to focus on having content that keeps audiences engaged (and therefore watching more ads),” Swanston said in comments by e-mail.

Netflix’s move seems inevitable as the streaming landscape moves into its next phase. The Company’s Approximate Earnings Report, which follows disappointing figures by streaming platform Roku, demonstrates that a first act defined by cord-cutting and content catching up with consumer preferences is complete, and another driven by SVOD which is cheaper, bundled and offset by plans funded by advertising, said Tal Chalozin, co-founder and CTO of Innovid, in emailed comments.

Despite the challenges of rolling out an ad-supported tier, this move could be a key part of getting Netflix back on track.

“If Netflix is ​​successful in creating an advertising revenue stream and can rein in the widespread sharing of passwords, there’s a chance they could increase margins and the current average revenue per user (for the US and Canada ) above $14.78, making shareholders happy and advertisers thrilled with the ability to engage with consumers watching premium content,” said Eric John, Vice President of Media Center from the IAB, in comments by e-mail.