Netflix Finds Success With Ad-Supported Tier Despite Challenges

At CES, Netflix President of Worldwide Advertising Jeremi Gorman revealed how the new ad-supported tier has been performing in select markets like the US, where viewers can offset subscription costs by watching ads. Gorman also shared plans for future growth.

At CES’s Variety Entertainment Summit, the executive reported that they were pleased with the variety of advertisers in their debut selection.

“Gorman noted the variety of brands participating in advertising is “across the board,” including CPG companies, luxury firms, automotive and retail. This broad selection provides viewers with varied ad types to avoid monotony, she predicted.”

The interview discussed early feedback on Netflix’s introduction of ads, as well as concerns raised.

Netflix has faced criticism for its high ad prices – one exec referred to them as ‘Super Bowl CPMs’ – but Gorman defended the pricing, though he acknowledged market forces will determine how much they can charge.

The high CPMs are a result of two factors: limited space for advertisers, and the premium content environment in which ads run. We don’t want to disappoint anyone, so we keep it exclusive.

Debate rages over if Netflix is a “premium environment,” yet the streaming giant appears to be altering its outlook.

“We understand that we’re at the top of the market,” Gorman said. “The market will tell us what CPMs are reasonable.”

A potential issue with Netflix’s ad-supported service is the available content for ads. Since it wasn’t initially created to include ads, many of its deals don’t have AVOD rights (advertising video on demand). Consequently, there is limited ad inventory and some Netflix Originals can’t be shown with advertising if the contracts didn’t secure those rights.

Gorman stated Netflix was tackling the licensing issues.

“Progress is being made daily,” Gorman noted, adding that “most of the content people watch regularly is available in the ad tier.” Netflix currently has 85-95% of its content accessible through this format.

Business-wise, Netflix worries that offering a lower-cost plan could lead to customers switching to cheaper tiers faster than new users signing up for ad-supported ones. Despite this, Gorman doesn’t think it will be an issue since their current subscribers typically stay on the same plan.

The exec was unable to provide data on the performance of their ads-supported product due to Netflix’s upcoming earnings announcement, but expressed satisfaction with its growth.

Netflix’s ad tier is available in 12 countries: the U.S., U.K., France, Germany, Spain, Italy, Australia, Japan Korea , Brazil , Canada and Mexico . The company has no immediate plans to expand further but aims to target larger ad markets in the long-term. Subscribers on this plan have lower video quality (720p HD) and limited device streaming along with an inability to download content for offline viewing.

Netflix has ambitious plans to go beyond traditional ads and tackle dynamic insertion of ads tailored to relevant moments, single-show sponsorships, and more. In the future, they will also offer marketers the ability to target by age and gender.

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Max Chen

Max Chen is an AI expert and journalist with a focus on the ethical and societal implications of emerging technologies. He has a background in computer science and is known for his clear and concise writing on complex technical topics. He has also written extensively on the potential risks and benefits of AI, and is a frequent speaker on the subject at industry conferences and events.

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