Will Netflix’s Ad Tier Force Transparency?

Advertisers need to know whether they’re getting their money’s worth, which means sharing data — something the streaming giant is not known for

Not having commercials during its programming has been a hallmark of Netflix’s corporate image as a disruptive force in TV. Even as the company moved ever closer to the broadcasting ideal of offering something for everyone, it resisted — or even scoffed at — the idea of bringing in ads.

But after the release of a rough quarterly earnings report April 19, in which Netflix had its first net loss of subscribers in more than a decade, the streamer is making plans to launch a less expensive, ad-supported subscription tier in the next couple of years. A company used to leading the streaming space will now be playing catch-up in the advertising-based video-on-demand (AVOD) field, as nearly all of Netflix’s major competitors either already have ad-supported options or announced plans for them.

Advertisers have been eager to get into business with Netflix for years, and given the sheer scale of its user base — nearly 222 million worldwide and 74.6 million in the U.S. and Canada — it’s easy to understand why. Netflix is the last, biggest piece of untouched real estate in the streaming world for ad buyers, and as the number of people who subscribe to cable or satellite service continues to shrink, it represents a huge opportunity. “I think every single TV buyer would want the Netflix audience,” says Dallas Lawrence, senior vp at TV analytics company Samba TV. “Among cord-cutters, Netflix is the most-used app. This is unlocking a huge market potentially previously unreachable to TV advertisers.”

Several sources THR spoke with also noted that even as Netflix pledges to crack down on password sharing, offering an ad-supported tier would allow the company to make up some of that potential lost subscription revenue. As Lawrence puts it, “An AVOD model would immediately make those viewers monetizable.”

With advertising comes the need to let advertisers know whether they’re getting their money’s worth — though Netflix and other streamers are notoriously stingy with viewing data. “In the ad world … one of the requirements is some level of transparency and third-party auditing and reporting. Advertisers want some proof points,” says Jim Lombard, CEO of connected TV ad marketplace Tetra TV.

Netflix also has taken a few small steps toward acknowledging thirdparty data. When Nielsen released its first platform rankings 10 months ago, showing that streaming had overtaken broadcast TV in share of viewers’ time, it earned praise from Netflix co-CEO Reed Hastings, who said, “Nielsen in is a good place to referee or scorekeep how streaming is changing the U.S. television landscape.” The industry demand for ad space on Netflix may even give the company some leeway in how open it is to sharing data with advertisers, Lombard notes. “In the initial days, Netflix can get away with being a black box because so many people want access to it,” he says. “Scaling is tough, and you need good [people]. But it would be hard for them not to succeed.”