Preparing to push play on Netflix advertising

With the impending launch of Netflix advertising, dentsu Aotearoa is poised and ready to help clients evaluate if this opportunity is right for them – if, or when, it becomes available here.

While Netflix’s Basic with Ads plan launched in the US on November 3, 2022, details around a similar planned launch for New Zealand are scarce, and dentsu Aotearoa is looking to its international colleagues to see how things play out.

Richard Hale, Managing Director Media at dentsu Aotearoa, says that his agency has some clients involved in the launch in Australia “so we will be able to see first-hand how that is working and take our lead from them”.

This ad supported plan also rolled out across Canada, France, Germany, Australia, Japan, Korea, Brazil, Mexico, Italy, and Spain, and while not confirmed at the time of writing, dentsu is anticipating New Zealand will be added to the list in early 2023.

This ad-tier product was launched on the same day for consumers and advertisers, meaning that if it does launch in New Zealand there will be no pre-built audiences.

This makes it difficult to forecast the initial scale of the offering, however, using Spotify’s premium versus free subscribers as a proxy, up to 56 percent of the audience could convert to the ad-tier model overtime, which in NZ represents an audience of about 1.12m available on the platform.

“Outside of that, because Netflix isn’t likely to share a huge amount of information on reporting or post analysis initially, it’s kind of hard to prepare for it. We’ll have to see how it goes in Australia and then make a call here in New Zealand,” says Richard.

The platform will initially offer non-skippable 15” and 30” pre-roll (gets played before the content) and mid-roll (played mid series but not mid-movies) ads, and has announced the ad load (the number of times in a period that an ad is played) will be low with an average of four to five minutes of ads per hour. Other features of the new plan include a video quality of 720p/ HD (now for both the Basic with Ads and Basic plans) and a reduced number of movies and TV shows due to licensing restrictions, which Netflix is working on. The ad plan also doesn’t allow users to download titles.

“This puts a question mark over how many people will be willing to forgo their paid for subscription and all the paid for content that it provides to step down into a version of Netflix with less content,” Richard says.

“But equally there’s the other side of the equation where people who don’t have Netflix might be more likely to trial it because of the free version.”

Some mystery also remains over how Netflix will organise measurement for its advertisers, however, to help advertisers reach the right audiences and to make sure the ads are relevant to consumers, it will offer broad targeting by country and genre.

According to the Netflix website, “advertisers will also be able to prevent their ads from appearing on content that might be inconsistent with their brand (e.g. sex, nudity or violence)”.

The streaming giant has also announced it is in partnership with Doubleverify and Integral Ad Science to verify the viewability and traffic validity of its ads starting in Q1 2023.

As for audience measurement, Nielsen will use its Digital Ad Ratings in the US. This will become available sometime in 2023, and eventually be reported through Nielsen ONE Ads.

A vetting process will also be in place around which brands can advertise, with the platform only accepting high-quality advertising that delivers story-telling and fits the environment, rather than retail messages.

Due to its high price point (in Australia it is being sold at around a $100 CPM) it is expected that the

advertising inventory will be dominated by large global brands initially, with more joining over time as information about measurement is revealed.

“If you think about it from a brands perspective, some will think of this as a positive – being in an environment with limited advertising,” Richard says. However, some could find the lack of information off putting he adds.

In terms of what dentsu will offer clients to help them in this space, Richard says the agency will work to provide as much information as possible including learnings from its Australian offices, and any further information Netflix provides to allow for upfront analysis.

“We will work with clients to understand where Netflix fits in their overall communications strategy.

“We are still a little bit in the dark as to exactly how cost efficient it will be as a platform based on how many audiences will be exposed to ads.”

According to sources in a report released by dentsu, Netflix will only sell advertising through agencies, and in the early days of launching are only looking for long-term commitments.

All things considered, there are some definite pros and cons from dentsu’s perspective. According to 2021 ‘Where are the Audiences’ AP15 data, Netflix is the largest Subscription Video on Demand platform in Aotearoa.

Those that watch Netflix also spend 41 percent more minutes on Netflix compared to Neon and 72 percent more minutes compared to TVNZ+ according to Nielsen CMI Q2 21 – Q1 22.

However, while the scale of those who watch Netflix is large, these audiences are also on other platforms. Market Research Company Roy Morgan found that Netflix only delivers four percent incremental reach over and above TVNZ+, Youtube, and Linear TV combined.

“In preparation, we’ll be looking at Australia first, taking learnings from that market and applying those here, trialing will however be necessary in New Zealand to gain understanding of Netflix’s efficacy as a result of the limited information we have to date, and are expecting to receive, to inform future recommendations.”

However, hopefully Netflix will have announced more developments on the measurement side of things so dentsu can provide “more accurate recommendations for our clients” he adds.

“We are going into an environment with inflationary pressure and forecasting government pressure on the GDP, and those kinds of things mean advertising dollars are probably going to be closely scrutinised, so spending money on something doesn’t provide full visibility on what you’re getting becomes a slightly harder choice in that environment.

“Overall, I think it’s positive in the sense that it provides a means to reach fragmented and hard to reach audiences, that may have migrated from other video and TV platforms, but I’m not yet entirely sure how many people it will reach, only time will tell.