Because as quickly as Netflix launched its advertising-financed offer, the streamer’s advertising business is slow to start.
According to five agency executives, Netflix is failing to honor ad-supported viewership guarantees for advertisers and allowing advertisers to reclaim their money for ads that have not yet run. Specific shortfalls vary by advertiser, but in some cases, Netflix only reached about 80% of its expected audience, executives said. A Netflix spokesman declined to comment.
“You can’t deliver. They don’t have enough stock to deliver them. So they’re literally giving the money back,” said one of the agency’s executives.
According to agency executives, Netflix structured its first advertising deals on a “pay-on-delivery” basis, where advertisers ended up paying only for the viewers they actually reached and Netflix released any unspent advertising money at the end of the quarter . This is in contrast to the traditional commitment to TV advertising, where TV broadcasters keep committed advertising money on their books and owe advertisers make-goods – or future advertising inventory – to meet viewer guarantees.
Agency executives praised Netflix for allowing advertisers to claim their money back, saying not all advertisers have done so.
The advertisers who took their money back were typically advertisers who were running marketing targeted to the fourth quarter and holiday shopping season, asking to have their money back to use elsewhere before the end of the year.
“The pace has been well below expectations, so some advertisers are now demanding money back for us to spend during the critical holiday period, and credit is due for agreeing – in vain – to the partnership,” said a second agency executive .
“Customers with shorter flights in particular have a hard time reaching their destinations,” said a third agency manager.
Other advertisers have instead asked to defer their ad dollars to Q1 2023 or later in the year, believing that Netflix’s ad-supported audience will continue to grow and the service will then be able to meet its guarantees.
“There were different ways to address the missing delivery targets and customers want a solution in different ways. Not everyone wants money back at the end of a fiscal year,” said a fourth agency executive.
The viewership decline doesn’t bode well for Netflix’s fledgling advertising business, but agency executives said they see it more as a symptom of how quickly the company has launched that business than a signal of Netflix’s long-term prospects.
“I think we knew there was going to be a supply problem and they could only take in a limited amount of money,” said a fifth agency official.
During an April earnings conference call, Netflix co-CEO Reed Hastings said that introducing an ad-supported tier “is something that we’re thinking about now and want to figure out over the next year or two.” Seven months later the ad-supported stage debuted.
Additionally, Netflix began targeting advertisers and agencies before hiring former Snap and Amazon advertising sales manager Jeremi Gorman as its advertising chief and NBCUniversal, Hulu and Snap sales veteran Peter Naylor as its top lieutenant. Agency executives also complained that Netflix didn’t do any major marketing of its own to promote the ad-supported tier and attract subscribers.
While Netflix has struggled to get its selling points across to advertisers, agency executives say the streaming service is still looking for endorsement deals for 2023. And Netflix seems to feel it’s still in a strong position judging by advertising prices as indication for this. The company had Originally, the company required advertisers to pay $65 per thousand impressions, exceeding Disney’s target CPM of $50 for Disney+, making Netflix the most expensive of the major ad-supported streaming services. Netflix, meanwhile, has lowered its price but still charges advertisers a $55 CPM, though ad buyers will likely take advantage of the slow start to haggle over another price cut.