Newsletter
In November, Netflix introduced its ad-supported tier in select markets, including the United States, which allowed viewers to offset the cost of their subscription by watching ads. However, according to a report from Antenna, the ad-supported tier was off to a slow start, accounting for only 9% of U.S. subscriptions. Not only was it the least popular service tier for November, but only 0.1% of existing Netflix subscribers switched from another plan to the ad-supported service. Despite this, Netflix remains optimistic about the future of the service.
At CES 2023, Netflix’s President of Worldwide Advertising, Jeremi Gorman, provided some insight into the performance of the product and the company’s plans. Gorman stated Netflix has been happy with the initial selection of advertisers and the diversity of brands taking part.
“It’s really across the board. We’re seeing CPG companies, luxury companies, automotive companies… [and] retail. We’re seeing a broad swath. There’s a wide variety of advertising types, and I think we’ll continue to see that,” said Gorman.
Concerns over high ad prices and limited inventory
One of the issues raised was the high ad prices Netflix has been charging, with some calling them “Super Bowl CPMs” (cost per thousand impressions). In a reply, Gorman defended the “premium” rates that Netflix charges, stating that they are justified because of the high demand and the premium content environment in which the ads are shown.
Another concern with the ad-supported tier is the limited ad inventory due to many of Netflix’s content deals not including AVOD (advertising video on demand) rights. Gorman said that the company is working on the licensing issues and currently has 85% to 95% of its content available on the ad tier. Currently, Netflix is running traditional 15-second and 30-second ads but is considering offering other types of sponsorships in the future, such as single sponsors for a particular show or targeted ads based on content or demographics.
There were also concerns that the ad-supported tier could cannibalize Netflix’s existing subscriptions as customers switch to the cheaper option. However, Gorman brushed off these concerns, stating that Netflix customers have historically remained on their current plan.