Netflix closed its first upfront last week, and by all accounts, the streamer has come a long way with the ad community since its first round of negotiations last fall—even if advertisers committed fewer dollars in some cases. 

Overall, the ad spend committed to Netflix’s upfront was flat or down compared to the streamer’s initial deals around its ad tier launch last year, according to multiple media buyers. But the buyers anticipate a higher percentage of those budgets will actually be spent this time around. In late 2022, Digiday reported Netflix was coming up short on delivering the audience it promised to advertisers post-launch, meaning some advertisers were unable to actually spend the dollars they had intended. Now, buyers are optimistic that the streamer will be able to deliver on guarantees and put their ad dollars to use. (It's worth noting Netflix's initial negotiations for its ad tier took place outside of the traditional upfront selling season.) 

“We’re committing less, but the less is more real,” said one buyer. “Our new deal has a lower, more realistic endeavor and the actual spend that sticks will likely be up versus a year ago.”

Like most sellers in the upfront market, Netflix was reportedly amenable to lower pricing and sought higher volume as economic headwinds continue to challenge the advertising market. Multiple buyers confirmed Netflix’s CPM, or cost per 1,000 viewers, settled in the mid- to high-$40 range, with some variations both higher and lower. Netflix debuted in the ad market with industry-high CPMs of around $60, Ad Age reported last year.

Multiple buyers also confirmed Netflix pitched an agency-level commitment of $40 million, double the ask in its initial negotiations. This means that media agencies buying Netflix inventory on behalf of clients must spend that amount in totality. Multiple buyers said their ultimate commitment fell short of that number. The primary sticking point was the number of subscribers that receive ads.

“They really need to focus on how they convert more people into the ad tier, and to grow their reach, because if it’s this limited, it’s just hard to make a recommendation [to clients for] how much money you can really put there,” said a second buyer.

Buyers put Netflix’s U.S. ad-supported subscriber base at just about 2 million. Netflix has touted its ad tier reaching 5 million global monthly active users, more recently upping that number to 10 million, but it has not been clear on how monthly active users correlate to subscriptions. It also hasn't broken out U.S. numbers, which is the main concern for upfront advertisers. The second buyer noted another complaint in striking deals with Netflix was that “they’re just not supplying any real numbers.” In this year’s fourth quarter, Netflix is slated to incorporate Nielsen Digital Ad Ratings as well as business attribution measurement from EDO in the future.

“I’ve always maintained that their content is unbelievable, but the biggest question is will people choose ad-supported, and to what scale?” said a third buyer, who agreed the ad tier’s scale and transparency were the main hesitations for clients. “What’s the amount of subscriptions that a person is willing to pay for? In my opinion, Netflix is one of them, but they generally pay for an ad-free experience.”

Read more: Netflix picks EDO for outcomes measurement

A source with knowledge of Netflix’s negotiations said the streamer closed deals with all major holding companies as well as numerous independent agencies in its upfront. Netflix is said to have nearly sold out of show-specific, as well as holiday or themed-hub inventory, and saw particular strength in the auto, consumer packaged goods and retail categories.

“We grew our ads plan membership by almost 100% quarter to quarter, so that’s good growth,” said Greg Peters, co-CEO of Netflix, during the streamer’s second-quarter earnings call last month. “We’re also confident that all the fundamentals are there and that we can build, over several years, a material ads business.”

Making progress

Multiple buyers expressed general positivity over the advancements Netflix has made in their tech capabilities as well as the general process with the streamer’s sales leadership. Although Netflix debuted its ad tier with limited targeting capabilities, the third buyer was pleased to see innovations native to streaming.

While the buyer said the majority of Netflix’s capabilities are still foundational, with most targeting done by broad demo, geographic location or content, it has added options such as the ability to be the first advertiser a user sees on a given day when they start a show or movie. The buyer also noted progress in brand safety offerings, which allow advertisers to pull out of being placed with undesirable subject matter at the episode-level, without having to axe an entire show for the single entry that violates the brand’s guidelines

Overall, Netflix “brought in some real pro sellers” since their previous round of negotiations, said the third buyer. “[Peter Naylor] was involved in the launch of streaming platforms [such as Hulu], so he knows what it takes to grow a platform and how to sell it. He got it right.”

A fourth buyer, though, questioned if Netflix’s previous round of negotiations left too many advertisers with a bad taste for the streamer.

“The people that signed on last year to do advertising with Netflix—high price, low guarantees, low volume of users, no real transparency on how they were going to grow a user base,” said the fourth buyer. “So, a lot of clients paid the high price. Some of them were happy and delivered; some of them were unhappy and didn’t deliver. Jumping forward to this year’s upfront, the big consternation Netflix had is that they don’t have clients just jumping at the platform.”

Streaming competition

The fourth buyer said that clients didn’t view Netflix as a “must-buy” as competitive streaming services have upped their ability to achieve the reach advertisers are used to gaining in TV, whereas not long ago streaming was only incremental in the media mix.

“This year was definitely one where the shift [to streaming] did continue to happen rapidly, but now you’re not necessarily always having to shift [dollars] out of a linear partner completely” because the traditional networks have grown their digital platforms, said the buyer. “A year or two ago, this scale was just starting on the Peacocks and other platforms. Now the scale is there, and we are putting significant dollars there in addition to the streaming-only companies.”