How will Netflix fit into the advertising ecosystem?

As the advertising ecosystem evolves, it begs the question how global SVOD giants like Netflix and Disney+ will fit in to the equation. The brand identity of these platforms is based on providing a premium subscription service with no advertising, however with global inflation impacting consumer attitudes and behaviours towards spending and streaming it will be fascinating to see how these giants adopt a tiered approach to advertising.
08 November 2022
John McCarthy

Strategic Content Director, Media Division

We look at the evidence to understand how consumers and advertisers might feel about SVOD businesses opening up for advertising. 

Kantar recently released the latest findings from its fascinating annual Media Reactions survey. Consumers and the advertising industry rank media channels and individual media brands in terms of their attractiveness as vehicles for advertising.  

Noticeable in their absence from the rankings of top media brands were the global SVOD giants Netflix and Disney+ for the simple reason that, at the time of fieldwork, they have not launched their ad-supported services yet.  

How will consumers and advertisers feel about them as vehicles for advertising, and what impact may they have on the rankings for next year’s Media Reactions survey? We’ve been looking at the available evidence that may give us some clues. 

Breaking new ground 

It's a fairly unprecedented situation as the current Media Reactions rankings feature media brands that have always been advertising platforms, and so advertising is baked into their brand DNA. Netflix, Disney+ - and possibly other SVOD services who may follow their lead - established themselves as premium subscription services with no advertising, arguably a key part of their brand identity, particularly for Netflix.  

Will that give them an advantage in being seen as premium environments, or may advertising confuse or annoy their subscribers? 

The future will end in tiers 

It's also important to note that the approach that the SVOD entrants to the advertising market is a tiered one. Kantar’s recent well-received report The Future Viewing Experience explains the motivations behind,and challenges presented by, the streamers’ move towards hybrid revenue models and concludes that ‘the future will end in tiers’.   

This tiered approach does not have too many precedents from which we can learn. Certainly, some publishers and broadcasters have introduced ad-free premium tiers, but these have tended to be fairly niche, whereas Netflix and Disney+ are going the reverse direction in introducing an advertising tier to a previously ad-free environment.  

Certainly in the case of Netflix, these will not be ‘free’ tiers and will still require a subscription, albeit a lower rate than the highest tier. Content availability for Netflix is also (slightly) limited, and some functionality (such as downloading content) is to be limited on the ad-subsidised tiers.  


Is Spotify a precedent? 

In this regard perhaps the most direct precedent may be the audio-streaming giant Spotify which has an ad-funded tier with the same content but more limited functionality. That tier was established over a decade ago, and is free as opposed to a lower subscription, but what is particularly significant is that Media Reactions reveals that Spotify is ranked fifth by marketers amongst all measured brands as a platform for advertising and third by global consumers (beaten only by Amazon and TikTok). If it can work so successfully for audio streaming, then it’s clear that the potential for Netflix and Disney+ as advertising platforms is there. 

What about attitudes to online video advertising? 

A particular challenge is that whilst marketers rate online video advertising as their top media channel, it does not rank in consumers top five, so acceptance may be an issue.  

Meanwhile, as The Future Viewing Experience report highlights it will be a challenge to introduce advertising into platforms not previously designed for it. Episodes and films originally designed for SVOD do not have the natural breaks for advertising which other content for advertising services has ‘baked in’ from the start. Careful integration and ad load will be vital considerations. 

What audiences will the ad tiers deliver? 

Advertisers will undoubtedly be attracted to the new tiers as a potential way to reach light viewers of linear TV, but will they also be keen to understand precisely which new and existing customers migrate to the ad-supported tiers? Will more affluent and/or ad-avoiding subscribers stay on the premium tier, perhaps resulting in a lower tier audience that is less well-differentiated with linear TV audience profiles (or even less attractive)? 

What do we know already? 

The good news is that Kantar’s audience measurement services are increasingly ready to measure these potential new audiences to advertising.  

In the UK for example, our Focal Meter technology is used to track and report both Netflix and Disney+ at a total platform and content levels for BARB. So we already know that 64% of UK viewers watched Netflix and 40% Disney+ in September 2022, compared to 93% for total broadcast viewing.  

The season finale of Netflix’s biggest recent hit, Squid Game, was watched on TV sets in the UK by 5.8 million people last November, but what proportion of the audience to the upcoming season two will be exposed to advertising tiers, and what will be the format and volume of that advertising?  

The need for third party measurement 

Netflix and Disney+ will no doubt have their own internal figures tracking their advertising tiers, but advertisers and agencies will be keen to understand how these platforms build incremental reach over other video platforms.  

That’s why Netflix has recently announced that it’s signing up to industry audience currencies including BARB in the UK and further afield, an important endorsement of the need and value of independent third party measurement.  

As data in The Future Viewing Experience report shows, it’s a highly competitive market at the moment, with high overlap between the various forms of streaming, so third party measurement and verification will be critical to the success of Netflix and Disney+’s venture into new territory. 

It’s going to be fascinating to see exactly how the SVOD giants manage their transition and how they slot into the advertising ecosystem in next year’s ‘Media Reactions’. Clearly the potential is there, based on this year’s Media Reactions data on consumer and marketers’ attitudes to advertising and on insights from Kantar’s ongoing measurement of SVOD Services in a growing number of markets.  

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