Netflix’s ad sales shakeup—what Peter Naylor’s departure means for its business

Netflix has parted ways with its top ad liaison Peter Naylor, a longtime veteran in the industry, as it continues to find its footing in the world of advertising and turns to programmatic, automated channels to sell ad inventory. With Netflix’s focus on building ad technology, and after striking programmatic ad deals with Google and The Trade Desk, Naylor’s personal touch—up close, schmoozing with the biggest brands—was likely not a fit for the new direction the streamer is heading, according to multiple executives familar with the situation. Netflix’s ad business is still nascent, and it has undergone at least two major shakeups since being announced in 2022. Now, Naylor’s departure makes a third. This year, Netflix signaled it would go all in on ad technology, promising to build an in-house platform, similar to rivals Disney, NBCUniversal, Amazon and Paramount+. Netflix also is about to turn on programmatic advertising through Google’s Display and Video 360 and The Trade Desk, and is working with supply-side platform Magnite. Also read: Inside the state of Netflix’s ad sales Check out the latest Ad Age events and award programs This tech tactic is a different beast than the premium, white-glove style of dealmaking Netflix seemed to imagine it would be making when it first started selling ads. At the time, it hired Naylor, who came from Snap and before that Hulu, as head of ad sales and Jeremi Gorman, who was Snap’s chief business officer, as president of advertising. Gorman departed last year and Amy Reinhard took Gorman’s role, while Naylor continued to work closely with top brands to sell prestige programming, including Netflix’s recent deal to stream an NFL game over Christmas this year. “As you remember, Jeremi was let go seven months ago, and the new boss is shaking things up and rebuilding with her own vision in mind. These things happen,” according to a person close to the situation. Naylor declined to comment on his departure. “Peter’s enthusiasm, industry knowledge and relationships have been invaluable in getting our advertising business off the ground. I want to thank him for all he has done to build our team, grow the business and position Netflix for success,” Reinhard said in a statement. It appears Netflix still has a ways to go to realize its ad ambitions. On Thursday, the company announced its earnings and said advertising revenue wouldn’t contribute to the company’s bottom line this year or even next. “We don't expect advertising to be a primary driver of our revenue growth in 2024 or 2025,” Netflix said in a letter to shareholders. “The near-term challenge (and medium-term opportunity) is that we’re scaling faster than our ability to monetize our growing ad inventory. It’s why continuing to build our ad sales, measurement and tech capabilities is so important.” Netflix’s upgraded advertising technology, giving brands more pipes through which to buy commercials, is set to come online next month, and advertisers are getting a feel for the features and limitations, according to marketing leaders briefed on the program. Netflix announced earlier this year that it would connect to Google, The Trade Desk and Magnite, so programmatic ad buyers could place ads on the streaming app. Those buying paths are expected to open Aug. 1, according to multiple advertisers. It’s a milestone that marketers have been waiting for ever since Netflix started running ads in late 2022. At the time, Microsoft had exclusive rights to sell the highly coveted inventory, but Netflix’s ad business has been slow to get off the ground as it still needs to build an ad-supported subscriber base, and it was initially looked at as overpriced in the market. Netflix was banking on its prestige position in content in a streaming world that’s increasingly becoming commoditized. But advertisers were not fully buying that story, or the premium of $60 CPMs‚ the cost per thousand impressions. Now, with more demand-side partners coming online, Netflix’s ad tech roadmap is becoming clearer to advertisers. They told Ad Age the tech still lags connected TV rivals such as Disney, Paramount, NBCUniversal and Amazon, but the next phase for the platform will open the way for more advertisers to try Netflix. When Netflix says, “go,” Google’s Display & Video 360, The Trade Desk and Magnite will flip a switch that makes Netflix ad inventory accessible in what are known as programmatic private marketplaces. Magnite is Netflix’s main supply-side partner that connects with DSPs, which also facilitates trading. Also, Netflix still has a relationship with Microsoft and its DSP Xandr, which had been an exclusive seller of Netflix ads until now. Greg Peters, Netflix’s co-CEO, addressed the ad business, and ad tech, throughout the earnings call with Wall Street analysts today. Netflix has heard from advertisers about its need to open those programmatic channels, and in some cases advertisers weren’t buying the platform without those DSP connections, Peters said. “[It] was a necessary point for them to be able to buy." Netflix also said it was investing in its ads team. “We’re adding more sales folks, we’re adding more ads operation folks,” Peters said, “building our capabilities to meet advertisers. A big component of that is giving advertisers more effective ways to buy Netflix.” Netflix also is building an in-house ad server, which it won’t launch until next year, in Canada, the company said. The ad server is where Netflix appears to be planning to open more advanced targeting and measurement that advertisers are still demanding, too. Decisions, decisions “Netflix is at a fork in the road,” said one major media and tech consultant, who has worked closely with the streamer, ahead of Naylor’s departure. Netflix is making ads accessible through the DSPs, but it’s still wrestling with its turn to programmatic and considering how it will share data with advertisers in this new ecosystem filled with buyers hungry for audience insights, show information and ad targeting. “Do they double-down on data, double-down on ad tech and move toward Amazon, Disney, NBCU and the other data-driven streaming solutions,” this consultant said, “or do they lean into to what Apple has done and say, ‘No, we’re not going to do people-based targeting, we’re not going to do one-to-one measurement, we’re not going to do people-based planning. We are going to target by content [a contextual signal].’ That’s the debate within Netflix right now.” When Netflix starts enabling ad buys through DSPs next month, it will limit targeting and sharing of signals, multiple advertisers said. Jon Whitticom, Netflix’s ad tech guru, is helping develop the roadmap. Whitticom joined Netflix as an advisor in January 2023, but was hired full-time as VP of product in October, according to his LinkedIn profile. Whitticom is an ad tech veteran with stints at GroupM and Freewheel, the Comcast-owned DSP. “He has to think about the longer term gains here, which is, do I really want to build this expensive and robust ad tech stack, if by the time I build that, it’s already three years old,” the consulting executive said, “or do I try to make this fundamental shift and say that’s not what we want to be, and if you want to buy us, you have to buy us our way, and with our tools, and we’re not going to do these other types of targeting.” Ad Age spoke with more than a half-dozen media buyers, programmatic ad execs, and other marketing leaders prior to Naylor's departure about Netflix’s programmatic ad move, to understand what the platform can and can’t do when it comes online. Most ad leaders spoke on condition of anonymity because they were not authorized to comment on Netflix’s ad tech roadmap. These executives painted a picture of a streamer that wants to participate in modern ad tech ecosystems while maintaining a high price of ads compared to rivals, even as Netflix won’t initially offer the same audience targeting that makes some rivals more attractive. For instance, Netflix has taken a hard stance against sharing internet protocol [IP] addresses in the bid stream—which is the programmatic ether through which data is passed between buyers and sellers to establish the price of ads based on targeting information. Advertisers use IP addresses to do some of the most advanced targeting to households on CTV. Netflix is making it a privacy priority not to share IP addresses, and at first will offer only location targeting, according to ad buyers. Even before expanding its relationship with DSPs, Netflix had been stingy with its data and measurement. Netflix allows basic age, gender and location targeting, meanwhile Amazon has been making advances with Prime Video, including allowing brands to target slices of audiences during live NFL games, serving bespoke commercials to viewers depending on product search history and other highly niche data. Netflix sees its premium programming as being on par with TV—a mix of prestige series such as “Stranger Things” and “Bridgerton,” reality shows such as “Love Is Blind,” and documentaries and sports. Netflix still thinks it can keep its ad offering as a mass media play akin to broadcast without the same highly advanced audience targeting seen from CTV rivals. U.S. subs In August, Netflix will launch its DSPs in the U.S., Canada, Brazil and Mexico, reaching just a slice of Netflix’s nearly 300 million global subscribers. Netflix has said 40 million subscribers are in the ad-supported tier, but advertisers are mostly interested in the 12.5 million ad-supported subscribers in the U.S., one top programmatic ad buying executive told Ad Age. “They don’t have a lot of targeting options, they don’t have an identity spine built out yet, they don’t have advanced audiences,” said this programmatic executive, “and they only have 12.5 million subs that are ad-supported, so it’s baby steps.” “They’re still focused on basic ad innovations,” this person said. Netflix’s move to ads has been one of the most watched dramas in ad land since 2022, when co-founder Reed Hastings announced the company would finally relent to inserting commercials into the programs. For years, the company resisted, opting for ad-free subscriptions that kept a premium halo around the streamer. But it was a sign of the times when Netflix announced the plans for an ads business. The viewing world had been moving to connected TV apps, away from TV, and advertisers were starved for audiences who were increasingly spending time within apps that didn’t offer commercial breaks. But the “streaming wars” for viewership turned into ad wars: In 2020, NBCUniversal launched Peacock; in 2021, ViacomCBS (the corporate name at the time) launched Paramount+; In 2022, Disney+ announced an ad-supported tier. This year, Amazon, which already had ad-supported apps and devices, went fully into streaming ads by opening Prime Video to commercials. See America's Hottest Brands 20 brands that are trending in 2024 Click here Digital world Now, U.S. digital video ad spending is expected to reach $62.9 billion this year, up from $26.2 billion in 2020, according to the latest industry report from trade group IAB. That amount of spend means digital video, which includes connected TV, social video and online web video, will top linear TV advertising for the first time in the U.S. this year. Meanwhile, when just accounting for connected TV, ad spend will rise 12% year over year in 2024 to $22.7 billion in the U.S., IAB said. Netflix has been making a concerted ad sales push for two years now, sending its sales team to top industry events, including hosting upfront presentations to ad buyers and going to the Cannes Lions International Festival of Creativity. Netflix is not just trying running commercials mid-show, but it has brand integrations with its series, and even out-of-home activations, according to advertisers. It’s an ad brew that is expected to lead to $1 billion in revenue this year in the U.S., according to eMarketer, which would overtake Disney+’s U.S. ad haul. The move to more programmatic advertising is expected to make it easier for advertisers to get into Netflix’s ecosystem, too. Netflix has not revealed many details about how it is integrating with The Trade Desk, Google’s DV360 and Magnite, but the ad tech platforms have unique selling points and different levels of technology to unlock, depending on which features Netflix allows. Programmatic is a must for Netflix, because it’s a preferred method of buying among advertisers. In fact, 75% of connected TV ads are sold programmatically, and 25% of connected TV ads are sold in private marketplaces, preferred deals and programmatic guarantees, which are all subsections of programmatic sales. Netflix is enabling private marketplace transactions through The Trade Desk and DV360, according to advertisers. Private marketplaces are a way to introduce auction dynamics into selling the ad inventory, and buyers have flexibility rather than being locked into buying ads as they are in guaranteed deals. DSP party Google, The Trade Desk and Magnite are clearly excited by the prospect of plugging into Netflix. Their ad tech sales teams have been in touch with agencies and brands educating them on the new supply of ad inventory that is about to come online, ad executives told Ad Age. Google and The Trade Desk have different value propositions. With Google, DV360 also taps into YouTube inventory, and The Trade Desk has a reputation for its strong retail media connections with retailers such as Walmart Connect, CVS Media Exchange and Albertsons Media Collective. Netflix has not enabled shoppable TV ads yet like other connected TV rivals, but it’s on the roadmap, according to advertisers. “Making Netflix available in major DSPs, via private marketplace, is a game-changer for media buyers and mid-market advertisers without heavy spend commitments that are looking to spend more into that inventory,” said Skyler McGill, head of programmatic and video at digital ad agency Wpromote. “But it's also an opportunity for larger advertisers managing complex media plans. It unlocks more agility ... if an activated campaign isn't performing, we can shift budgets to another tactic that is working.” Also, Netflix is expected to open to more DSPs, such as Yahoo, according to advertisers, who were not certain about the timing of the expansion. There are still details to be worked out with the DSPs before the buying starts, including whether there will be minimum spending commitments and floor prices within auctions. Netflix, when it was sold exclusively through Microsoft, was known to command $60 CPMs, some of the highest in the industry. In the early days, Microsoft deals had minimum campaign commitments in the six figures to transact in the private marketplace, according to advertisers. Advertisers are hoping that opening up Netflix’s inventory will bring down prices across the board, but that remains to be seen. In general, CTV ad rates are down about 10% on most streamers, including Netflix, and that is expected to drop even further in the coming years as CTV becomes more comparable to linear TV, another media buyer said.

Netflix’s ad sales shakeup—what Peter Naylor’s departure means for its business

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