- Netflix launched its ad-supported tier in the US on November 3.
- Advertisers say Netflix is charging high prices for the placements.
Netflix's new ad-supported tier, "Basic with Ads," rolled out on November 3.
Advertisers are able to run 15- and 30-second videos before and during programs, with a cap of four to five ads per hour, execs said during a press call on October 13. It costs $6.99 per month, slightly more than NBCUniversal's ad-supported Peacock and less than Hulu. The new ad-supported tier does not have the full Netflix catalog and will offer video quality up to 720p. Unlike Netflix's other tiers, users on the ad-supported plan are not able to download titles.
A deck shared during the press call showed an ad for L'Oreal playing before an episode of "Emily in Paris."
The ad-supported tier is initially offered in 12 countries, beginning with Canada and Mexico on November 1. Ads in the US are first to roll out.
Netflix has been pitching advertisers with aggressive pricing, according to advertisers briefed by Netflix. Netflix is competing for ad dollars with a growing number of competitors including Disney's forthcoming ad-supported version of Disney+, NBCUniversal's Peacock, Hulu, Amazon, and Warner Bros. Discovery.
AdAge reported that Netflix is expecting the ad-supported tier to generate 500,000 subscribers by the end of the year compared to its 220 million total subscribers.
Netflix has seen "overwhelming interest" from hundreds of global advertisers and has nearly sold out its ad inventory for launch, said Jeremi Gorman, Netflix's president of worldwide advertising, during the press call. But shortly before launching, advertisers told Insider they were hesitant to invest.
Gorman was formerly an executive at Snap, and she and fellow Snap alum Peter Naylor, president of worldwide advertising, were recently hired to spearhead Netflix's new ad business. Netflix has also hired TV and ad execs including Julie DeTraglia from Amazon and Adam Gerber from GroupM.
Netflix is leaning on Microsoft to sell ads
Before Netflix hired Naylor and Gorman, it had its advertising partner Microsoft's Xandr lead the initial talks with advertisers, Insider previously reported.
Advertisers were told they can purchase Netflix ads through Xandr's demand-side platform, the adtech firm's tool that buys programmatic ads for marketers, said an adtech exec briefed by Microsoft. They'll be able to set up programmatic ad campaigns with guaranteed pricing and placements. For advertisers that do not use Xandr's DSP, Netflix will offer insertion orders, a more traditional way of buying TV ads. In both cases, the ads will ultimately be sold by Netflix, not Microsoft, said the exec.
Gorman said that partners like Microsoft will only be able to use data collected by the ad-supported tier for targeting within Netflix.
Netflix is seeking top ad prices
Netflix is asking for CPMs (the cost to reach 1,000 people) between $60 and $65, according to advertisers who have heard Netflix's presentation. That would make Netflix one of the priciest streaming TV options for marketers, slightly above the rollout of HBO Max last year. Netflix declined to confirm its CPMs during the Oct. 13 press call.
Advertisers said they expect prices to drop after Netflix's ad-supported tier launches, as has been typical with other streaming services like NBCUniversal's Peacock. Netflix is also asking ad agencies for yearlong commitments ranging from $10 million to $20 million depending on the size of the agency, similar to upfront deals, according to sources.
Netflix is asking advertisers to commit quickly. Two advertisers said that Netflix asked for proposals by the week of Sept. 5, overlapping with Labor Day. Other sources said it was looking to approve advertisers by Sept. 30. Netflix is looking for names of potential takers and a general understanding of how advertisers spread their budgets throughout the year, suggesting that Netflix is targeting the biggest TV spenders.
Netflix will have fewer ads than its competitors
Streamers typically pitch advertisers on lighter ad loads than traditional TV for a better viewing experience. Netflix's four to five minutes of ads per hour is on par with HBO Max and Peacock.
Netflix is also looking to differentiate itself with tools that limit the number of ads that people see to one ad every hour with a maximum of three ads per day, said the adtech executive. Gorman said that the platform will have "very tight frequency caps" to restrict the number of times an ad can repeat.
Advertisers say Netflix will be picky about ads
Netflix is only allowing a handful of big brands as launch advertisers and plans to examine each ad for high-quality messaging and creative, said the executive briefed by Netflix.
Netflix has long worked with big brands like Coke and GMC to integrate product placements into shows like "Stranger Things" and "Queer Eye." It's touting such partnerships to advertisers and its ability to make their ads, said the executive.
Political ads will not be permitted on the platform, Gorman said. Unlike Amazon, Netflix is accepting ads from alcohol brands, with Anheuser-Busch as the first beer advertiser.
Advertisers want data and measurement
Netflix is pitching advertisers on the ability to target ads by genre, country, and Netflix's own daily ranking of the top 10 programs while looking to add more specific parameters like age, gender, content rating, and time of day down the road, said the executive briefed by Netflix.
Demographic targeting will not be available at launch, Gorman said. Upon signing up for the plan, users will be asked for their age and gender, which will eventually be used to drive ad targeting, she said.
Netflix will also work with DoubleVerify and Integral Ad Science to verify ad impressions and traffic in the first quarter of 2023. It also has a partnership with Nielsen, which will measure audiences through its Digital Ad Ratings product starting "sometime in 2023," Netflix said.