by Maor Sadra, CEO at INCRMNTAL
Despite a lot of noise in the marketplace, up until the end of last year, CTV was largely irrelevant as an advertising channel. The launch of Netflix’s ad-supported tier has of course changed that and for the first time we’re seeing this video-on-demand (VOD) streaming service propel CTV into the mainstream advertising market. It seems the ad industry’s feverish excitement at the prospect of addressable advertising on the major streaming network was not initially matched by consumers though, and sign-ups – at least initially – were disappointingly slow.
Things seem to be looking up for the streaming giant now however, with the announcement it doubled ad-based subscriptions between December and January, and overall notched up 7.7 million additional subscribers at the end of Q4 2022, which exceeded expectations.
Regardless of its ad subscriber base, it doesn’t seem to have put brands off advertising on CTV, which is the most common way to watch Netflix. Dentsu’s 2023 Global Ad Spend forecast noted that CTV investment continues to trend upwards, and globally CTV ad spend increased by 23.7% (year-on-year) in 2022 and is forecast to continue to grow at double digits over the next three years.
It’s easy to see why brands are so captivated by the prospect of advertising on Netflix and other major VOD streaming services like Disney+. It’s a chance to get creative on fresh and exciting channels that boast a high proportion of Gen Z and millennial viewers. But bringing it back to the main aim of advertising, which is to boost brand awareness and drive sales, is CTV really the right platform to reach consumers, or simply an unprofitable ego play?
Beset by targeting and measurement issues
Netflix did concede from the outset that its audience targeting abilities were limited. So limited in fact that ads can only be targeted by genre and country, which is even less sophisticated than advertising on linear TV. Netflix’s CEO admitted its ad offering is still in the ‘crawl’ phase, and in time it plans to add more specific parameters such as the time of day, age, gender and content rating, but for now its targeting abilities are well below other digital channels. Netflix does recognise the importance of ad measurement and has formed partnerships with measurement companies in different regions to validate the viewability of ads by real people and also protect advertisers from fraud or invalid traffic. Yet Netflix and CTV more generally, can’t offer the robust targeting and advanced measurement capabilities brands expect of digital channels. The question remains then, if brands can’t effectively target or measure their advertising how can they know whether Netflix is driving any value for their business?
Of course there are measurement tools on the market that can provide brands with a comprehensive view of how much incremental value Netflix advertising is driving compared to other channels. But without such a tool in place, advertising on Netflix is currently pretty redundant.
Netflix advertising might be nice and shiny but it’s also pricey
There’s no two ways about it, CTV advertising is expensive and Netflix specifically is one of the most expensive options on the market. Although it hasn’t publicly announced the cost of advertising on its platform, it’s reported to be between $60 and $65 Cost-Per-Thousand (CPM), which makes it more expensive than its counterparts HBO Max and Disney+, and between 4x and 6x as much as a linear TV ad. The average range for CTV ads in general is between $35 to $65 CPM, due to the scarcity of the inventory and the fact CTV purportedly allows for better targeting and ‘slightly’ better measurement than traditional TV. Considering the cost for a precision-targeted and measurable video ad online is between $3 and $10 in the UK though, can the cost of advertising on CTV really be justified?
The trouble with spending so much to run a campaign on CTV is that being a nascent channel with limited measurement capabilities, its performance isn’t yet clear. So at a time when most brands are looking for ways to overhaul their marketing spend to account for the dire economic situation, advertising on CTV doesn’t necessarily seem like the most sensible option.
The audience figures aren’t promising
Slow sign-ups to its ad-supported tier has also limited its available inventory, which has been a major bone of contention with advertisers. It was widely publicised in December that Netflix had agreed to refund advertisers after campaigns fell short of guaranteed viewers. After an increase in sign-ups at the beginning of the year, it seems Netflix has been able to rectify its performance in some regions with ads approaching 100% of viewer targets. But it’s not the case the world over, as earlier this month the streaming giant refunded Australian advertisers for failing to meet projected audience numbers for advertising subscriptions, with some campaigns underperforming by as much as 70%. So for any big brands looking to run global campaigns on the platform, the figures still aren’t looking promising.
What’s interesting is that Netflix is only expecting its ad-supported tier to ever drive a maximum 10% of annual revenue, which means that advertisers on the platform are never going to reach anything like the 230 million global users currently subscribed. Also until a demographic breakdown of ad-tier subscribers is available, brands have no idea if they’re even reaching the right audiences.
Many advertisers currently view Netflix CTV advertising as the shiny new car of the industry but although it might look fresh and glossy, currently it can’t drive targeted, addressable ads to consumers with anything like the degree of precision other ‘cars’ in their fleet can. It’s not that there’s no hope for Netflix, if subscribers to its ad-supported tier increase and it’s able to boost its targeting and measurement capabilities, it could be a great addition to brands’ cross-channel advertising. For now though, unless they have a comprehensive measurement tool in place that can accurately pinpoint exactly what, if any, uplift Netflix ads are driving, advertisers would be better to keep their budget and egos in check by spending only on channels they know will reach the right audiences and deliver results.