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Netflix’s (NFLX) ad business was one of the most widely discussed decisions in corporate America. After years of opposing ads, the streaming giant quickly changed its tune and started offering an ad-supported tier to counter a streak of subscriber loss.
But, so far, it looks like the streaming giant might have moved too fast in launching the new ad service. Multiple agencies have reported that Netflix has fallen short of its ad guarantees. In certain cases, the company has delivered advertisers only 80% of the eyeballs promised.
To lure companies to advertise, Netflix structured many of its deals on a “pay on delivery” basis. This means that those companies would only pay for the audience their advertisements actually reached, with Netflix reimbursing all unspent ad dollars at each quarter’s end. Now, it sounds like those reimbursement payments are ballooning.
This is a unique advertising model that is not typically used across other mediums, especially TV. And while some companies are happy to take their money and run, it’s worth noting that not all advertisers have done so, with many pushing their budgets through into 2023.
Netflix’s ad business is down, but not out. Despite early struggles, the streamer does not plan to reverse its decision to offer ads on its platform. Instead, it will likely continue its pattern of reexamining previous approaches, then adapting them to whatever latest challenge it faces – not unlike the heroes in its beloved original content.
However, on the company’s Hero’s Journey, this would be categorized as a trial, to be sure. It will certainly impact Netflix’s ability to get advertisers to pay its initial goal of $65 per thousand impressions. For reference, Disney+ (DIS) only asks for $50 per thousand impressions.
Netflix knows how to sell content, but clearly needs some time to figure out how to sell ads. Luckily, if you are a customer of Netflix’s cheapest tier, this may mean you’ll be the first to see whatever experimental strategies they pilot on their journey there.
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