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Netflix launched its ad-supported tier of its service just a few weeks ago. And it looks like it is already not doing as well as Netflix had hoped. Analysts had pegged this new tier as bringing in as much as $5.5 billion in additional revenue. However, a report out of Digiday this week shows that Netflix is not meeting expectations and is now starting to refund advertisers, since they were unable to deliver the promised impressions.
As you might expect, the contracts with advertisers do vary, so not everyone is getting refunded. But Netflix is failing to meet some of the contractual impression totals and therefore is returning pre-paid money to some advertisers. That does sound bad, but it’s not out of the ordinary for a lot of companies that use advertising.
It’s pretty common for advertising totals to not be met. Especially when it comes to video advertising. And that’s because services like Netflix is reliant on subscribers actually watching content. If you subscribe to Netflix’s new Basic with Ads tier, and then barely watch anything on Netflix, they are losing out on those impressions.
Fortunately, this is not leaving a bad taste in advertisers’ mouths. As the report also notes that they are appreciative of Netflix’s willingness to refund the money. That’s not always how this works, in the world of advertising.
Is Netflix’s ad-supported tier a fail?
I wouldn’t call the ad-supported tier a fail, at least not yet. Netflix will likely never disclose how many are on its ad-supported tier, versus the other tiers. But it’s hard to imagine that there’s very many on that tier. Especially since it’s not available on Roku, nor outside of the US.
However, we have seen rumors and heard from Netflix’s executives that we may be seeing additional ad-supported tiers. Likely an ad-supported tier for each of its primary tiers it has right now. The big thing is going to be, when they raise prices again, will more people move to an ad-supported plan to save some money and make that price increase sting a bit less?