Tag Archive: TV advertising

  1. Netflix advertising: a new frontier for the ad industry?

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    Following poor Q1 results, Netflix announced that it will be introducing an ad-supported tier to its streaming platform. So what does Netflix advertising mean for the rest of the industry? 

    When the so-called ‘streaming wars’ kicked off, no one imagined that just around the corner was a global pandemic. A global event that would change the face of the world, the economy and consumer behavior. At first, Netflix, Disney Plus and their competitors reaped the benefits of lockdowns across the world. Bored consumers, unable to find entertainment or spend their money elsewhere, signed up to the streamers in their millions. Disney Plus reached 90 million subscribers three years ahead of schedule at the end of 2020. Netflix added an additional 37 million subscribers in 2020, bringing its total to over 200 million. Indeed, this huge increase in subscriptions helped to bring Netflix into the black for the first time in 2021. 

    More than two years on, the world has largely learned to live with Covid-19. Normal life has more or less resumed, so where does that leave the streamers?  

    Netflix – boom,  bust and boom again?

    The new normal has certainly had an impact on Netflix, along with the higher cost of living and other factors. Netflix announced in April that it had lost 200,000 subscribers in Q1 2022 – its first-ever decrease in subscribers. The company blamed the loss on several factors, including high penetration, economic factors, the war in Ukraine (Netflix has pulled out of Russia), and the high number of customers who share their passwords with non-paying households. But whatever you blame it on, it was a bad quarter for Netflix, particularly in comparison to Disney, who announced that they had added nearly 8 million subscribers in the same quarter. 

    It was against this backdrop that Netflix CEO Reed Hastings made his big announcement: Netflix would introduce an ad-supported tier. This was in stark contrast to the platform’s long-standing opposition to ads. Netflix has since announced that the new, lower-priced tier could launch as early as the end of this year.  

    What Netflix advertising means for the rest of the streaming industry…

    In recent years, a belief that 1 billion households were willing to pay for streaming services led to huge investment in the streaming sector. Much of the money from this investment was poured into content creation. The theory was that better content equals more subscribers. Netflix invested so much into content creation that it only became profitable for the first time in 2021. However, it is becoming clear that the market is likely much smaller than originally believed, especially given that high penetration was partly blamed for Netflix’s weak Q1 results. The streaming platforms need to find new ways to deliver growth – and that’s where advertising steps in.  

    Many assumed that Netflix’s lost subscribers were lost to competitors. However, research revealed that in the two weeks after cancelling a Netflix subscription, 87% of subscribers had not signed up to a rival service. This suggests that cost is the key factor. That makes a lower-cost, ad-supported version more appealing – although Netflix will be keen to avoid cannibalising subscriptions to its top tier. 

    Although Disney’s subscribership is healthier than Netflix’s, it is also watching its outgoings carefully; Bob Chapek announced that the company would be cutting its overall film and TV spending by $1 billion this year. It is also launching an ad-supported tier for Disney Plus, which it is in a good position to do thanks to its experience in the space with Hulu. 

    …and for advertisers?

    For a long time, TV advertising has, slowly but surely, been losing its sheen, compared to more measurable and targetable formats such as online channels, and more exciting ones like podcasts. With increasing numbers of consumers cutting the cord on cable and ‘going dark’ to ad-free environments such as Netflix and Disney Plus, advertisers have had to fight it out for live sports programming in order to reach large audiences. But, thanks in no small part to the news from Netflix, it’s back with a bang. Advertisers will be excited about reaching Netflix’s binge-watching audiences and – as a newcomer to the advertising scene – it is hoped that Netflix’s ad offering will be high-quality, prompting many advertisers to truly embrace non-linear channels. That said, viewers who have higher incomes and are therefore more attractive to many advertisers will likely remain on the ad-free version, out of reach to the advertisers who are so keen to reach them. It will be interesting to see if they choose to advertise on Netflix anyway. 

    Netflix’s announcement meant it was to late for the streamer to join the US Upfronts this year, but many advertisers will be excited about its anticipated arrival at next year’s Upfronts.

    What will Netflix advertising look like?

    It is currently unclear how Netflix will approach selling advertising – it could use an outside company, develop an in-house ad sales team (which will require significant hiring), or it could acquire an ad company or a company that already has an ad offering – such as Roku. But no matter which direction it goes in, it will benefit from being immensely data-rich, thanks to its cloud storage, audience insights and email addresses. If it approaches advertising carefully and intelligently, it could potentially set a new standard for advertising on TV, creating an experience which is both enjoyable for the viewer and rich with benefits for the advertiser. It will be undoubtedly keen to keep its user experience as clean as possible, so will likely seek to avoid banners on its homepage. It could also use pre-rolls rather than interrupt shows with ads.  

    An article on AdExchanger recommends that it combines content, commerce and commercials into a seamless experience. Gamification, for example through ‘choose your own adventure’ ads, would allow brands to generate more data as well as to build engaging CTV experiences. One-click shopping would enable brands to ‘capitalize on a seamless and closed loop’ to drive conversions and revenue, as well as to collect valuable data. Finally, if Netflix plays its cards right, it could own a vast wealth of extremely attractive first-party data with which it could build and sell audiences. Its existing contextual recommendation platform could be repurposed to handle ad optimizations and outcomes, similar to a walled garden. 

    The future of advertising on streaming platforms

    Netflix’s announcement that it will introduce an ad-supported, lower-cost tier has sent ripples of excitement across the industry. This is the company that almost single-handedly created the streaming category, pioneering a model that has been replicated by many, from the entertainment conglomerates to smaller, specialist streaming platforms. Its move into advertising, after so many years of refusing to even consider it, will be eagerly watched and could – if executed well – create a new standard for ads in both the streaming industry and the wider TV industry. 

    Header image: Venti Views on Unsplash

  2. Key TV trends for marketers at the 2022 Upfronts

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    The US Upfronts recently came to an end, but marketers across the US and globally will continue to buy TV space throughout the year. The rapidly evolving TV landscape makes this challenging – so what do marketers need to bear in mind as they negotiate with TV vendors? In an article for MediaPost, Colin Linggo, ECI’s SVP, Head of Media Investments & Operations, North America, explored some of the key trends impacting the TV industry in 2022.

    This article first appeared in MediaPost on May 12 2022. Discover ECI Media Management’s top 10 insights for the 2022 Upfronts in our whitepaper.

    Another TV Upfront season is upon us — that time of the year when TV networks and media owners are locking up new deal commitments with advertisers and their media agencies for the upcoming 2022/23 programming season. Nothing encapsulates this time like the Masters’ slogan, “A Tradition Unlike Any Other.” An industry tradition that has been radically upended, fueled by post-COVID-19 consumer behaviors, economic volatility, inflationary concerns, industry consolidation and data fragmentation, the 2022 Upfronts are guaranteed to be different and challenging. Our internal estimates indicate that this year’s Upfront market will reach $22.1 billion for the 2022-2023 season compared to $19.9 billion last year  — an increase of 11%. With so much uncertainty, it’s important that marketers are armed with some necessary insights to plan for this critical period.

    The advancement of alternative video audience measurements and new challenges for marketers

    The big picture: Nielsen, the legacy TV measurement currency, is facing stiff headwinds from its competition and media owners. Viewership is no longer linear or siloed on traditional TV sets. Consumers are watching both long-form and short-form content across multiple devices and streaming services. Along with Comscore, iSpot.TV and VideoAmp, including Nielsen, all the key audience and video measurement companies are working at breakneck speed to advance their cross-channel measurement capabilities, reflecting the dynamics of the digital media ecosystem. With all the major media companies investing heavily in their respective streaming services, it’s a top priority for the C-suite to establish an industry “certified” cross-channel/screen measurement system and non-Nielsen currency to integrate and capture all viewership within their portfolio for first-mover advantage. This will allow marketers to obtain conclusive evidence that their advertising investments are contributing to results.  NBCUniversal is partnering with iSpot.TV. The newly formed Warner Bros. Discovery will be partnering with Comscore, VideoAmp and iSpot.TV. While we do not expect monumental shifts with overall negotiation strategies this summer, this year will certainly be a litmus test for all parties. We project that in 2023, 10% to 15% of Upfront deals will be negotiated on non-Nielsen alternative currencies.

    Measurability is everything and is becoming flexible across platforms

    Why it matters: Initiatives such as those mentioned above — including NBCUniversal and iSpot.TV — will allow advertisers to procure media inventory cross-platform, with ad impressions served across all creative assets, including linear TV, connected TV (CTV) and AVOD services. There will be a shift from legacy GRP planning and negotiations to impression-based planning, similar to how digital media is transacted. The measurability of non-linear platforms allows for incremental reach through de-duplication across cross-channel platforms and unified data measurements. However, the deployment of anything new and limited beta testing bring unexpected challenges and complexities. While the benefits of CTV have been well-documented by many sources and reports, ad fraud, overexposure and frequency capping limitations currently permeate the CTV supply chain.

    What they’re saying: Linear TV viewership and ratings continue to deteriorate, with many viewers only tuning into live and on-demand programming. With all traditional broadcast networks offering ad-supported streaming platforms as part of their offerings, such as Disney (Hulu), Paramount Global (Paramount+) and NBCUniversal (Peacock) reach can still be achieved with disciplined planning. Simply relying on TV to drive reach is untenable in today’s fragmented environment. Marketers should pursue a balanced cross-screen planning approach and holistic data strategy for reach and frequency.   In addition, it’s important to note that the audiences targeted on linear TV might not be the same on CTV. Untapped, underserved, underrepresented, high-potential CTV opportunities can be uncovered through effort, timing, research and forward-looking planning.   While all the major media owners and agencies will present bundled cross-platform packages and benefits, remember that legacy siloed operations still exist behind Upfront presentation curtains. These bundled deals are like mutual funds. Deconstruct the Upfront deal components and commitments, and calibrate with agency partners to meticulously evaluate each component. This will ensure the right balance between cost and quality metrics.

    The cost of advertising on TV will increase

    By the numbers: As revealed in our Annual Inflation Report released back in January, even with declining audience viewership, TV inflation in the U.S. is expected to rise this year due to supply and demand. The domestic economy is rapidly returning to normalcy, even with geo-political and energy market volatility. This Upfront cycle will also be heavily impacted by the U.S. midterm elections. The competition for flagship events like the NFL and FIFA World Cup and limited premium inventory will be high, as marketers continue to seek out safe bets for mass reach at the right frequency. Inflation impact will be felt across the marketplace.

    Where it stands: Traditional linear TV inventory is becoming increasingly competitive due to emerging industries. TV advertising spending has historically been dominated by traditional advertisers in consumer products, automotive, telecommunications, food and beverage and pharmaceuticals. In recent months, there have been increased media expenditures from emerging industries with sizable marketing budgets, such as cryptocurrencies, FinTech, gambling and electric vehicles. “Non-traditional” market drivers are paying above industry norms and market rates for high-value, high-demand video inventory. Combined with a lack of premium inventory and ratings erosion, the inventory is becoming increasingly competitive, leading to higher costs. The quality of media-planning strategies will be paramount in today’s marketplace.

    Be smart: When proceeding to the advanced stages of the negotiations with media owners and networks, marketers should ensure that their deal terms and negotiated costs are protected against market factors that the agencies can directly plan, control and influence to offset market inflation with negotiations at the highest agency levels to drive economies of scale. Like a seasoned institutional investor, the agency should provide its clients with the right investment and cost containment strategies to achieve the greatest value. Many Upfront deals will be finalized faster than in previous years, possibly several months earlier than usual. For marketers to lock in prices within internal and/or external benchmarks, Upfront planning cycles will need to be accelerated.

    Between the lines: There is significant value to audience deficiency units (ADUs). Upfront “guarantees” are part of standard deal terms and media owners’ commitments to advertisers and agencies. However, even with the most advanced forecasting models and planning methodologies, under-delivery on performance is to be expected. Shortfalls force TV networks to give clients audience delivery units (ADUs), or “makegoods.” In the simplest terms, ADUs are like store credits. No one likes them or remembers having them. Most, if not all, advertisers will experience under-deliveries from their TV partners. Managing ADUs is tedious and often overlooked by both clients and agencies.   But with careful management, ADUs could potentially be an ancillary benefit during Upfront negotiations — especially with network partners that advertisers consistently spend with year-on-year. These are owed inventory and impressions from a previous period that have not been delivered within the “guaranteed” period. Advertisers should coordinate with their agencies to develop a clear ADU leverage strategy in advance of the negotiation period.

    Independent counsel, impartial insights, integrated strategy

    Heading into Upfront negotiations in such a fragmented and fluid marketing landscape is sure to bring consternation even for the most seasoned marketer.

    Marketers should ensure they have access to independent counsel and impartial insights to inform their negotiation strategy, and by benchmarking rates, setting precise media targets and quality guardrails, all aligned into a cross-channel integrated strategy that will deliver the highest media ROI and transparency.

    Header image: Proxima Studio/Shutterstock

  3. Is Netflix ready for the launch of rival platforms?

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    Make or break for Netflix

    A couple of weeks ago, Bank of America Merrill Lynch told clients that Netflix’s Q3 figures, out later today, would be ‘make or break’ for the streaming platform, and would indicate whether it would be able to effectively compete with new rival platforms from the likes of Disney and Apple. It’s been a difficult few months for Netflix – its share value has plummeted by nearly 30% in the last three months, and subscriber levels fell short of the company’s own guidance in Q2. Whether those subscriber levels have recovered will be of particular interest in the Q3 results – and investors will be looking for signals that they can retain that recovery as competitors launch their streaming platforms.

    Who are the competition?

    So what does the competition look like for Netflix? Apple and Disney are launching their streaming services next month: Apple TV+ on 1st November, and Disney Plus on 12th November in the US, Canada and the Netherlands, with other markets in the months afterwards. This makes strategic sense, particularly for Disney, as it can piggyback on the marketing for its big-budget holiday-season films, and Netflix has shown over the last few years that it gets its biggest viewership in the last couple of months of the year. WarnerMedia’s HBO Max and NBCUniversal’s streaming service will be launching in early 2020. So Netflix’s battle to keep its subscribers loyal – and grow its customer base – starts now. Convergence Research Group, which tracks the streaming industry, predicts that its 47% share of the streaming market in 2018 will decrease to 34% by 2022, as reported in an LA Times article.

    Original content will be increasingly important

    This decrease will in part be down to the fact that Netflix will be losing some of its most watched shows to its competitors: ‘Friends’, for example, will go to WarnerMedia’s streaming service in early 2020, while ‘The Office’ will be shown by NBCUniversal from January 2021. With adults spending only around 30% of the time they spend with Netflix watching Netflix Original content, it looks like this could have an effect on Netflix’s subscriber numbers.

    However, Bank of America Merrill Lynch told investors that he believes Netflix will have time to ramp up production of original content while its rivals work on building their subscriber bases. This will means that Netflix will need to continue its huge investment into original content – this year it is estimated to have spent around $16 billion dollars, and Pivotal Research Group estimates that this will have climbed to a giant $35 billion by 2025. This needs to be funded from somewhere and Netflix’s capacity to raise subscription fees – its fallback option to date – will be stymied by increased competition. Netflix could also consider increasing its debt, introducing ads, investing in innovation (such as the ‘Bandersnatch’ episode of ‘Black Mirror’, where viewers could choose what the main character did next), or harnessing the vast wealth of data they have on what people like to watch, and where.

    A core part of the streaming bundle?

    Netflix’s choppy year has made investors a little nervous, which is why so much rests on the figures that it is releasing today. But many think that things will be ok. Mark Mahaney, lead internet analyst at RBC Capital Markets, for example, told CNBC that most people will want to use more than one streaming service, and it’s likely that that will mean Netflix plus another – Netflix will be a core part of the bundle. He believes that Netflix has the scale advantage and better brand name, content, global distribution and partnerships than its competitors, which bodes well for the future. Time will tell!

    What does this mean for advertisers?

    TV is still a crucial medium for advertisers, but with viewers having more and more ad-free options from the new streaming platforms, it will become increasingly difficult to reach their hearts and minds. What’s more, they are likely to be less forgiving of higher ad loads on the ad-funded free-to-view channels. This means that the most effective media channels will likely become more expensive, and the wise ones may well have fewer, higher impact ad spots for which advertisers will pay a premium. Furthermore, the growth of addressable TV will allow for more targeted and therefore more engaging ads, and lower levels of rejection by the consumer.

    Image: Shutterstock

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