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4 min read

Netflix announces partnership with Microsoft ahead of rolling out new ad-supported tier

Back in July, Microsoft announced that it had been chosen by Netflix to become its new “technology and sales partner”. Essentially, Netflix has put Microsoft in charge of powering its first ad-supported subscription offering.

Fast-forward to October and Netflix has confirmed that its new ad-supported tier, called “basic with ads”, will officially roll out on November 3rd. Microsoft also confirmed, in a press release on October 13th, that the rollout will be exclusively supported by combining the power of Microsoft’s & Xandr’s platforms. For those unfamiliar, Xandr is a media buying platform where users can buy and sell digital advertising across ad networks and formats including streamable TV.

The original launch date was set for 2023, but Netflix “accelerated plans” to get ahead of Disney+ who is also rolling out an ad-supported tier. As a result of this pressure, Netflix has acknowledged that its ad offering may look “pretty basic”, in the early days.

Where will Netflix’s ad-supported tier launch?

Initially, this new tier will launch in 12 markets: Australia, Brazil, Canada, France, Germany, Italy, Japan, Korea, Mexico, Spain, the United Kingdom & the United States. 

Microsoft said:

“in each of these regions, we are working with top advertisers to plan for compelling, relevant, world-class content that is as entertaining as the programming itself – with no shortage of interest. Advertisers are keen to reach Netflix’s expansive audience in a premium environment. And consumers will be pleased with a high-resolution experience that averages only 4-5 minutes of advertisements per hour.” 

What does advertising on Netflix look like?

The introduction of an ad-supported tier on Netflix presents a huge opportunity for advertisers. The Chief Product Officer for Netflix, Greg Peters, said that they don’t expect subscribers to “trade down”, therefore presenting the new tier as an opportunity to potentially capture a whole new digital audience. 

The ad-supported tier opens up new opportunities for brands, and agencies advertising on behalf of brands, to integrate ads shown on Netflix alongside paid search, social, and any other channels as part of their existing strategy.

Ad formats

  • Ads will be 15 or 30 seconds long, playing before and during shows and films

Advertiser controls 

  • Broad targeting capabilities will be offered by country & genre
  • Advertisers will be able to prevent their ads from appearing on content that isn’t aligned with their brand (sex, nudity or graphic violence)

Verification tools

  • Netflix has partnerships in place with DoubleVerify & Integral Ad Science – which are platforms which verify the viewability and traffic validity of its ads, giving more confidence to advertisers, this will be starting in Q1 2023.

Audience measurement

  • Enabling advertisers to understand how Netflix can help them reach their target audience, Nielsen will use Digital Ad Ratings in the U.S, becoming available sometime in 2023. (Source: Netflix)

The Guardian reports that when Netflix’s new ad-supported tier launches, advertisers will not be provided with the option to target specific demographics. This is a standard offering in traditional broadcasting TV & is something that will likely change in the future.

There was an interesting piece written on Deadline, that outlined when the tier launches, targeting will be “consistent with television”, and that they will be competing for “linear TV dollars”, and then initially competing with Google & Meta for example. Therefore, we may well see more traditional media buyers moving onto Netflix before we see more digital spending shifting to the streaming site. 

What budget will you need?

Initially, it was reported by the Guardian that Microsoft had approached UK Media agencies, with a “premium price of £50 for reaching 1,000 viewers”.

For context, the Guardian also reported that the rates were “about twice the rate that ITV and Channel 4 charge advertisers on their streaming services, but significantly less than the £70 to £80 charged on traditional broadcast TV channels.”

There could be concern surrounding the higher CPM costs compared with the rate charges on ITV & Channel 4 for example, potentially pricing out some brands with smaller ad budgets, in the earlier days, who may be better off sticking with affordable platforms such as YouTube.

Our thoughts

It will be interesting to see how Netflix’s ad-supported offering comes to fruition & to monitor how it evolves alongside the ever-changing advertising landscape.

So what are the next steps that you could take?

Firstly, this could be a fantastic time to go back to the drawing board and complete a full re-evaluation of your media channels, if you feel there is scope for your business or product to be featuring on Netflix, alongside some bigger brands & higher CPM’s, then now is the perfect time to start planning. 

Furthermore, alongside planning, it could also be beneficial to just wait! Hold fire and watch from the sidelines. This is a very new offering from Netflix (that may have bumps in the road), so this could be a perfect way to see how the platform handles ads. Will consumers warm (if at all) to the ads? We can only wait and see what challenges the platform faces once the initial hype surrounding the new platform is out, then you could look at jumping in and getting started.

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