Netflix is bullish on brand partnerships but within certain parameters—it’s all about the content. Here’s what brand marketers need to know.
‘Stranger Things’ Have Happened: Netflix Still Leads The Pack In Paid Streaming Content
Netflix’s recent partnership with GM and its new ads program signal new opportunities to access the company’s more than 220 million paid subscribers. That’s not including roommates, cousins, and significant others sharing passwords (something Netflix plans to crack down on). That opportunity comes with several caveats. Netflix is firmly in charge of how, when and for how long they will allow brands to access their audiences. The company has been riding a nearly uninterrupted year-to-year streak of revenue growth since 2011. Q4 2022 was the company’s first reported quarterly decline in revenue since the company’s founding. Additionally, Netflix’s subscription base is growing again after a brief dip in Q2 of 2022. As the most watched paid streaming service per Nielsen with the most streamed TV show of 2022, Stranger Things, Netflix is in a powerful position as a platform in control of some of the world’s most popular content and a trove of valuable user data.
Netflix Has Serious Branded Content Ambitions
According to Netflix, consumers’ shift towards streaming and away from traditional TV is likely permanent. The company is well aware of its power as a membership platform with the ability to showcase star-studded branded content that consumers, already in binge mode, will watch. “The one thing I’d point out is that what’s happening now and what’s going to be happening over the next couple of years is that the consumer is moving to stream,” stated Theodore A. Sarandos Co-CEO, Chief Content Officer & Director in a recent earnings call.
“I would say that this business is really completely about engagement, profit and revenue. So—and we’ve got to grow all of those things—and all those things are really tied to executing on that, on the content,” said Sarandos.
For Netflix, “executing on the content” may also mean delivering star-powered ad campaigns, like the GM EV commercial slated to run during the Super Bowl featuring Will Ferrell. As Ferrell drives his vehicle through the sets of Netflix hits and appears in a reimagined scene from Squid Game, the campaign serves as an ad for Netflix’s envelope-pushing product placement capabilities. As a content studio with its own stars, immense membership base and heavyweight brand partnerships, the company is now signaling its interest in disrupting advertising with the tools it knows best.
Cookies Crumbled? Netflix Will See You Now
The company is bullish on its nascent ad business but maintains that its model is centered on ad experiences that do not diminish the user experience. Judging its ads strategy based on engagement, results are promising, said Gregory K. Peters, Netflix COO & Chief Product Officer, in the Q4 2022 earnings call.
“The product experience is good, and that’s really a testament to lots of hard work for both Microsoft and Netflix teams who worked very hard to make that happen, and it’s really rewarding […] to see,” stated Peters.“ The other, I’d say, the pretty significantly fundamental thing is around engagement, and we see that engagement from ads plans users is comparable to sort of similar users on our non-ads plan.” The ads perform double duty for the company, driving ad revenue and building subscribership.
“Furthermore, now, we’re seeing take rate and growth on that ads plan is solid,” said Peters. “It’s great because partly, that take rate and that growth is due to incremental subscribers coming into the service because we have a lower price point. I expect to see that continue to actually grow over the year.”
According to Peters, the demise of the cookie in 2024 makes Netflix’s ad opportunities especially attractive. The company is devoting resources to making improvements in targeting, ad delivery validation and measurement.
“If you think about the targeting capability, the fact that we signed in fully addressable. If you think about the growing relevance of first-party data and how we do that, those are really big advantages that we can bring relative certainty to the traditional world,” said Peters.
Everybody’s Into Gaming, Including Netflix
Branded content opportunities in gaming have long been the domain of gaming-focused platforms. While gaming offers advertisers new audiences, it can also drive subscriptions, something Netflix must do to stay competitive in a crowded marketplace. While reports have surfaced that may have dozens of games in development, the company has launched a new gaming studio—its fifth—but according to the company, efforts are still in the seedling phase.
“We’re planting some seeds in terms of games and things like that, that if we execute well and we’re excited about the progress we’re seeing so far, will represent the future potential for us in terms of and more profit opportunities.” stated Peters. But the company appears to be squarely focused on developing “the best, most effective, highest quality premium connected TV ads experience as a win for consumers and advertisers and for us as a business,” according to Peters.