3 Ideas for Netflix's Ad Business
Disclosure: Transmit, tvScientific, and FatTail are clients.
With Netflix reportedly entering the “walk phase” of ad monetization and endeavoring to build its own adtech stack, the streaming leader can set the tone for CTV adtech innovation.
So far, ads on Netflix haven’t exactly felt revolutionary. Like most CTV ads, Netflix ads feel disturbingly similar to the ad breaks we’ve all been watching on linear TV for decades (despite TV adtech’s promises of creative renewal and unprecedented targeting).
But that’s to be expected seeing as Netflix was in the “crawl” phase. As the toddler starts to take to two feet, here are three ideas for Netflix to lead the way on CTV ad tech and experiences.
In-Game Ads and Other Engaging Formats
If you’ve watched as much NFL playoff football as I have, you’ve likely seen plenty of use of the picture-in-picture ad format (where, instead of cutting away from the action for a traditional 30-second ad break, you see the muted NFL game in one part of the screen and a sound-on ad in another). Leaning into picture-in-picture (PIP) and other CTV-native, in-game ad formats is one way Netflix should be breaking the mold on its crown jewel: live sports. This innovation, pioneered by companies like Transmit, would improve ad performance and the experience of viewers, who don’t want their live content disrupted by constant ad breaks.
Just adopting the PIP format, though, isn’t enough. It would be better if the ads were dynamically inserted into the stream and tailored to each viewer, replacing the blanket experience most viewers are receiving when they see the PIP format in sports broadcasts today. On top of that, Netflix could dynamically insert ads into the broadcast at times when they won’t be disruptive, potentially creating net new (but non-disruptive) ad inventory or replacing traditional ad breaks with a better viewer experience.
Another area where Netflix might be able to bring years of CTV adtech promises to life is shoppable ads. Industry folks have been hearing for years about the possibility of sponsored products being seamlessly integrated into programming — and being easily shoppable at that. If any company can do this without tarnishing the user experience, it would presumably be Netflix, which has historically been wary of ads and popularized scripted TV originals for streaming. It’s a fine line to walk, but these are the sorts of innovations you’d expect Netflix to contribute to the industry.
Performance TV
TV has long been regarded as branding’s most powerful channel. And, to date, to my knowledge, Netflix has followed the brand-forward TV advertising playbook, selling splashy sponsorships for its live sports properties, for example.
But as the leader in streaming and a California-based tech company, Netflix should be able to rewrite the TV ad playbook to transition from brand metrics such as frequency and reach to performance outcomes. Advocates of performance TV such as tvScientific CEO Jason Fairchild contend that CTV drives better performance than existing performance channels such as search and social, this value is already measurable, and unlocking it will drastically expand the market for TV ads by bringing in SMB and ecommerce advertisers.
As a technology leader and one of the most scalable streaming platforms, Netflix is in a good position to validate this hypothesis. And if they were to embrace performance TV and fulfill the vision of expanding its TAM to performance advertisers, they would not only drastically boost their own ad revenue but also shift the tectonic plates of digital advertising away from search and social and toward CTV.
Direct Deals Automation
Netflix is reportedly partnering with some of the largest DSPs and SSPs. That’s good news for the programmatic ecosystem, but it also raises a question: What is Netflix doing to automate the direct ad buying experience?
If any publisher is in a position (from the vantage point of scalability, exclusive inventory, technology prowess, and capital) to make direct ad buying better — possibly even easier and more automated than programmatic — it’s Netflix. They are no doubt looking to keep as much margin for themselves as possible, and one way to do that is to automate direct deals.
In adtech, we often assume that all technology will head in the direction of programmatic. But as FatTail CEO Doug Huntington argues, that isn’t necessarily the case. Netflix could use AI to make its products, inventory, and pricing easily accessible and easy to transact against. In doing so, it would not only maximize profits but also maintain control and transparency into its own ad business and incentivize advertisers to increase spend on the platform (because people do what’s easy, especially if it is also effective).
When it comes to ads, Netflix has something of a last mover’s advantage. The streamer can build an ad business that learns from the mistakes of traditional publishers and rival streaming apps. The well-capitalized, tech-first company is also in a position to innovate. As such, it should lean into innovation on ad formats, performance, and the media buying experience. For a tech pioneer, the old way will not do.
