Netflix is touted to debut an ad-funded tier by the end of 2022. But as hints of a premium price tag on the unproven service appear, marketers are divided on whether the reunion is worthwhile.

News reports, and several media agencies in conversation with The Drum, believe that Netflix has set a steep entry price for its incoming ad-funded tier. At $65 CPM –  the price of serving ad impressions to 1,000 people it‘s significantly higher than many streaming services (and even top calendar events like the high demand Super Bowl). At this early stage media buyers remain unimpressed.

Is Netflix‘s high bar just bluster or will its ad product deliver? Here‘s what marketers are worried about. 

Worries about Netflix’s ad model

Netflix’s early sales negotiations has been shrouded in silence. We’re not at the media pack stage of these talks and much of the information we do have has been leaked and softly disputed by the brand. 

For example, it was initially reported that Netflix would install a $20m spend cap to stop any one brand from saturating the platform. That’s appeared to have either been miscommunicated or has flipped to a $20m minimum spend – indicating that the platform is instead looking for a sizable commitment from a small number of brands.

A top brand side marketer says this minimum spend limit would be very restrictive to national advertisers, perhaps even in the US. “It has to be a global deal, for example, there’s no way anyone in the UK would pay that on its own.” Another buyer questioned why they’d deviate from the more favorable CPMs at a national broadcaster for Netflix's unproven product.

And that’s without even accounting for the advertising experience, which we've seen nothing of yet – although if it’s as good as the current customer experience it could lead the market. But that’s easier said than done. The brand-side marketer complained about seeing six of the same midroll ads for McDonald’s consistently interrupting his movie-watching experience on Prime Video just the night before. Netflix’s experience would have to be considerably better to impress brands. 

And, currently, Netflix is set to launch without a measurement partner. That's a deal-breaking for this marketer who needs to prove channel effectiveness.

Despite these woes, perhaps after some bartering, Netflix will likely find some keen marketers – even Quibi secured $100m in commitments before it launched. Clients have been keen on the Netflix audience and user experience for years now. 

For now, the product is in the hands of Microsoft’s adtech firm Xandr. One leading AV buyer is concerned that Netflix’s Xandr partnership locks it into a long-term walled garden. “It can’t do that, it's not YouTube. It’s not even Amazon. Netflix is saying you can only buy one way at a very high CPM with very limited reach.” How hands-on the group is in building the ad tier due out in just a few months remains to be seen.

• Privacy, independence and gaming – why Netflix picked Microsoft as its ad partner

And then will Netflix even be able to scale its ad product enough to even be worth consideration? Reports vary from between 500,000 to 4.4m depending on the traction it gains on the market – and if it hits that launch date. Will these be the ad-dodging TV viewers marketers hunger for or just the very same people they are reaching in linear environments showing up elsewhere? That’ll remain to be seen. The ad tier, at a lower monthly subscription cost, will prove sticky for leavers and attractive for those who’ve yet to try Netflix – similar to the model enacted by Spotify. What Netflix won’t want is millions downgrading to the ad-funded experience. 

One media buyer wondered if Netflix can continue to be a huge player in the US without some investment in live sports. “Every other streamer has it, it keeps their viewership engaged and coming back on a monthly recurring basis. If Netflix doesn’t have a good content slate subscriptions disappear and there will be no reach so it is a very precarious position.”

Another was incredulous at the rumors. She said:  “Seriously, give us a break, $65 CPM? And Xandr? Who buys Xandr anymore?”

One Variety report cites an ad load of four mins per hour for a series and numerous pre-rolls for harder-to-interrupt movies. These are reputed to be pre and midroll ads, lasting either 15 or 30 seconds – not entirely dissimilar from YouTube’s model. But will there be more on offer from the company that has numerous desirable content verticals and history of tasteful product placement?

The ad exec could see the price starting to make sense if it also incorporated these features. But she said it would need a robust measurement partner to get off the ground. She believes that Netflix rushed its ad tier announcement to please stakeholders and that it might have been undercooked, landing before the company hired Jeremi Gorman and Peter Naylor from Snap.

And then there’s the hallowed wealth of first-person data Netflix has of its users. The platforms already has a good steer on user interests and demographics. Can it unlock that data for anything more targeted than a contextual ad placement? 

Netflix clarified that the prices touted in the press were speculative and represented “early days” discussion – it’s clearly positioning the launch as a premium buy. But can it deliver everything at this current breakneck speed?

The streaming giant, which boasted some 220m global subscribers at the midpoint of 2022 is intent on getting its advertising product out ahead of Disney+’s in December.

Disney is to launch its cheaper ad-supported tier to help it reach 260 million subscribers by 2024. On the vertical sponsorship point, Scott Schiller, chief commercial officer at Engine, wondered if channel-based sponsorships were the best approach. “I’m not sure ads in the middle of Star Wars is going to go down well with that audience, but a Star Wars channel that has relevant advertising around the channel might.”

At the time of the original announcement in July, Netflix chief operating officer and chief product officer Greg Peters, said: “It’s very early days and we have much to work through. But our long-term goal is clear. More choice for consumers and a premium, better-than-linear TV brand experience for advertisers.”

The move reflects the growing trend toward ad-supported video on demand (AVOD) as consumers tire of expensive plans and service stacking. Recent Comcast research revealed 80% of consumers prefer an ad-supported service over a higher cost ad-free SVOD service.

This may be the move that saves Netflix. But is it too little, too late? 

Previously on The Drum’s TV Talks podcast we asked advertisers what are musts for Netflix’s ad-funded service. The big question was over what the business would offer to brands, and chiefly, how users would respond to them.