Netflix Is Reportedly Refunding Advertiser Money; Is Ad-Tier Underdelivering Subscriber Growth?
When Netflix launched its ad-supported subscriber tier — Basic with Ads — in November, excitement and expectations were high for what it could mean for the streaming giant, which had seen an uncharacteristically bumpy beginning to the calendar year. After starting the year with consecutive quarterly subscriber losses, the streamer rebounded a bit in Q3, but all eyes were on the new lower-cost subscription plans to see if they would buoy the company during the recent economic downturn.
While analysts had predicted as much as $5.5 billion in additional revenue in the coming years for the world’s largest streamer, on Thursday, a report from media and marketing publication Digiday indicates that Netflix might not be meeting expectations for its new ad-supported video-on-demand (AVOD) packages. Digiday’s Tim Peterson reports that the streamer is returning advertising dollars as it has been unable to deliver the total impressions promised to some clients.
The individual contracts with advertisers vary, but according to Digiday’s sources, Netflix is failing to meet some of the contractual impression totals and therefore is returning pre-paid money to some advertisers. While that sounds bad for any company — especially one banking on the impact of a new revenue stream — it is not completely out of the ordinary.
Often when advertising totals are not met, publishers and platforms will roll those ad spends over to future campaigns giving the advertisers a make-good credit for future use; reportedly, many Netflix advertisers are taking that option in these cases. However, those that are receiving refunds are by and large companies that went heavy on fourth-quarter ad buys in order to promote holiday sales, therefore, they are less likely to need credits for future quarters.
Digiday’s reporting also indicates that many advertisers were appreciative of Netflix’s willingness to refund the monies, which is not always standard operating procedure in the advertising world.
But knowing that Netflix is failing to meet impression totals does raise the question of whether or not the streamer’s new subscription tier is falling short of its customer goals. Are fewer people willing to sign up for the service at the lower cost than anticipated? Are fewer premium subscribers interested in opting for the cheaper tier than Netflix assumed?
Those questions are nearly impossible to answer less than a month and a half into Netflix’s AVOD experiment, and there is no guarantee that the streamer will break down the subscription totals in its next earnings report in the new year. The expectation from some in the industry was that up to 60% of Netflix subscribers would be on the ad-driven plans in the next five years, but if the company is having trouble meeting its goals after the initial, buzzy launch, perhaps those estimates were unrealistic.
Of course, the streamer’s inability to hit initial advertising quotas might not be caused by fewer than anticipated AVOD customers. Since the announcement of the ad-supported tier, Netflix has had to go back to its content providers to renegotiate licenses, since nearly all of those deals were originally signed without the possibility of additional advertising revenue figured in. Currently, on the ad-supported tier, content that is unavailable is marked by a lock icon encouraging customers to opt for the traditional ad-free tier.
It is possible that Netflix is hitting its subscriber goals for the new pricing options, but that it has been less successful in securing new deals with content partners and has a more limited inventory than it had anticipated, resulting in fewer places to put commercials.
Of course, no matter what the cause, it is to the streamer’s credit that it is offering refunds or make-goods to advertisers instead of jamming extra ads into content. The company had promised roughly four minutes of ads per hour and all reports indicate that it is abiding by that pledge, even if it would save them money to plug an extra 30-second spot in here or there.
Whatever the cause of Netflix’s advertising refunds, ultimately, it doesn’t appear to be too large of a call for concern as both advertisers and customers seem to be satisfied with the service after its first five weeks on the market. Netflix has a lot riding on its new advertising plan, and while these recent developments certainly don’t spell doom for the streamer, no business likes giving money back to advertisers.
Netflix
Netflix is a subscription video streaming service that includes on-demand access to 3,000+ movies, 2,000+ TV Shows, and Netflix Originals like Stranger Things, Squid Game, The Crown, Tiger King, and Bridgerton. They are constantly adding new shows and movies. Some of their Academy Award-winning exclusives include Roma, Marriage Story, Mank, and Ma Rainey’s Black Bottom.