Netflix’s announcement to offer ad-financed subscription models in the future has caused quite a stir. Yet, how much potential does the offer actually hold? And does this refer to a blatant disruption of the video market or will we, for now at least, hardly see any change for linear TV broadcasters? CROSSMEDIA strategist Florian Holub offers various perspectives for the German market.
It’s no secret that we have expanded our consumption of videos and films to include a multitude of channels and devices – ranging from TV broadcasters’ media libraries to live streaming on gaming platforms like Twitch, and right up to feeds and social networks’ stories. Meanwhile, in the “old world”, German television station RTL is bringing famous show host Dieter Bohlen back to the jury for one final season of “Germany’s got talent” – only to then shut down one of the last big TV “campfires” for good.
Netflix was one of the major media consumption disruptors, especially among Gen Z and Millennials. However, while Meta & co. attempt to monetize their video reach wherever possible, Netflix has hardly any relevance for the advertising industry. That is about to change: The announcement of cheaper, ad-financed subscription models, combined with Netflix’ and Microsoft’s strategic partnership in advertising marketing, marks the starting signal for further, far-reaching upheavals in the TV and video advertising market.
What are the implications of these changes?
The recently published data from AGF1 clearly shows that, despite increasing fragmentation in the streaming market and downwardly revised user forecasts on the part of Netflix, there is still momentum in the SVOD sector. Thus, not only does Netflix remain a top player, especially in light of the free competition from YouTube in spring; in fact, it has even been able to increase its reach once again. Nevertheless, there is no denying a certain degree of subscription fatigue, which is stated as one of the reasons for the need to search for new future monetization models.
The latest YouGov2 figures on regular usage, show that Netflix now has enormous appeal, with a 33% reach rate among the over-18s and even 49% reach in the young 18-29-year-old segment – and this is all the more relevant when it comes to reaching and inspiring the brand fans of tomorrow. Which is a task that the big TV marketers are still having their troubles with regarding their digital offers.
Yet, what threat does the streaming giant’s new advertising offer pose to traditional TV marketers? Or from the advertisers’ perspective: What opportunities will it open up to compensate for dwindling reach on linear TV?
First, let’s take a look at the user overlap: Of regular Netflix viewers, 60% continue to tune in to linear TV programs, too, albeit less often than the population average. The share of additional users offered by the channel is about 30-40%. Especially among 18-29 year-olds, well over a third already say they consume video content exclusively via streaming services and no longer on traditional television.2
How well will the advertising offer be received?
Then taking a look at other streaming providers, with both paid and free offers, it would appear that the percentage of those who accept advertising for discounted or free use could be in the range of about 30%3 . The current economic climate, inflation and uncertainty might favor thinking about whether one really needs multiple paid streaming subscriptions4, resulting in users becoming more price sensitive than before. On the other hand, especially among young people, the share of users with paid accounts is significantly higher – which could be an indication that a large share of streamers has very consciously opted for an ad-free experience. The exact dimensions will certainly depend on how significantly the prices vary within the Netflix offer.
Based on these figures, there is an estimated short- to medium-term potential of 5-6 million users, of which slightly fewer than 2 million have, to date, been hard or impossible to reach via TV campaigns, but which could now be addressed in one fell swoop on the big screen via the new Netflix and Microsoft offers. Even if this is in part already possible via YouTube and the multitude of other video platforms today, the bundled market power behind the Netflix brand alone will probably have an unprecedented psychological signal effect and lead to budget shifts in the media mix, and not only for first movers.
The bottom line: At least initially, we are dealing with an evolution rather than a revolution, and we will not see the big bang that the announcement might suggest. Nonetheless, Netflix’s move represents a trend-setting milestone in the development of the German video market. And it will certainly place even more pressure on the established TV marketers in the already tougher price negotiations Even if Netflix cannot monetize its entire reach directly, its advertising-relevant potential is still very likely to outshine the media libraries of TV marketers and therefore, it is a serious counterweight in the market. With new competitors for this market and the corresponding learning effects, the advertising potential will also increase steadily.
Within this context, it will be interesting to see how the TV vendors react and whether, in the face of the new headwinds coming their way, they will perhaps forge more compelling alliances among one another so as to respond to the American competition with united forces.
This is not the final answer on how to reach and engage Gen Z
However, it remains to be seen whether simply capturing declining ad reach in a new channel is really the answer to the increasingly growing advertising challenge of reaching and engaging Generation Z with brands. After all, in terms of their openness to classic advertising formats in digital channels3 and their expectations of brands and their role in their lives, many things have changed significantly when compared to previous generations.
As with other channels – be it in-stream, out-stream or social media – it is clear that the peculiarities and expectations of channels and users must be taken into account if brands would like to advertise successfully and authentically, and without being perceived as an alien element. The differences between TV channels, media libraries, YouTube & Co. in their usage patterns and motivations were most recently demonstrated very strikingly in the “Mapping the Moods” Screenforce study. While information, live experience and routine also play a major role in linear TV, for us, Netflix is primarily about enjoyment: forgetting our daily worries, relaxing and being entertained. So it won’t be enough to simply play out the same TVC as on TV.5
Thus, the true strength of Netflix as a platform, even in a partially ad-financed future, may continue to lie not necessarily in playing spots according to the old rules of TV’s glory days. Much rather, it may be found to a greater degree in smart, relevant brand integrations, as just now, for example, in the case of Quicksilver’s retro outfitting of the Stranger Things cast.
1 AGF Plattformstudie 2022-I
2 YouGov Profiles Germany 2022-07-17
3 Best4Planning 2021-III
4 Simon-Kucher & Partners – Global Streaming Study 2022
5 Screenforce – Mapping the Moods 2022
Foto Credit: Mollie Sivaram (Unsplash)