Editor's note: This story was published on April 12. On May 10, Netflix informed clients that it would no longer be hosting an in-person event as planned, opting instead for a virtual event.
Netflix’s Peter Naylor on new ad targeting capabilities and streamer’s first TV upfronts
It’s been one year since Netflix announced it would bring ads to its platform and just under six months since that ad tier debuted. Now, it’s gearing up for its coming-out party of sorts during the TV upfronts next month.
Netflix’s path to the event, which will take place May 17 at the Paris Theater, has featured its fair share of hurdles, including speculation about its readiness, industry-high pricing and a hesitance to share subscriber stats that have dominated marketplace chatter.
But Peter Naylor, who joined Netflix as VP of global advertising sales last August, has a prediction for this year’s upfront: “When all is said and done and you line up gainers, losers and even—we’ll be in the right column.”
The sales executive teased that while Netflix has been investing in perfecting its foundational capabilities—some of which are inspired by advertiser feedback—it will soon be ready to launch more unique features. For example, Netflix’s ad tier debuted with targeting only by country, but has been testing ad targeting capabilities tailored to its content over the past few months, which Naylor confirmed to Ad Age are now available to all advertisers.
In addition to offering fundamental targeting by age, gender, city, state and designated market area (exclusive to the U.S.), Netflix now supports targeting by eight content genres, including comedy, action, romance and anime, as well as by first impression, which guarantees a brand will be the first ad shown to a user during a single viewing session.
However, Naylor is most excited about the ability for advertisers to buy inventory per Netflix’s Top 10 list, a list the streamer generates on a daily basis to rank its top shows and movies by total hours viewed and then serves to users at the top of the app. The capability would put a campaign against the ranking titles, which Naylor said is an example of the platform-specific opportunities Netflix might offer. In the case of some of its most buzzworthy originals, such “Stranger Things” or “Wednesday,” advertisers might reach millions of viewers in a concentrated period of time.
Ad Age spoke with Naylor to discuss Netflix’s entry into the advertising market, its competitive advantage over legacy TV competitors and what to expect at this year’s upfront. The conversation has been lightly edited for clarity and length.
What has it been like stepping into this role as Netflix’s first sales chief and leading the company for its first upfront?
The market has been very kind to us. Everybody’s very excited that Netflix is finally in the advertising business. It’s been talked about for a long, long time and it’s finally here. People know the brand, people watch the service, people watch the shows. If anything, their familiarity and positive association with the shows lead people to expect that we’re going to have a huge audience right away and be very sophisticated right away, and if I’m doing anything with our customers, it’s just reminding them that literally a year ago, this was still a fantasy.
Advertisers of course have been excited for better targeting on Netflix, so I’m curious what other feedback you’ve been hearing from the ad community, and how you then turn around and implement it?
People really love the content. Some of the content like “Outer Banks”—there might be an episode or two where it has a mature theme, [which is why Netflix has implemented a new system for key-wording each episode of a series, allowing marketers to block single episodes of popular shows per its brand safety guidelines while still advertising in the rest of a season]. The ability to target content at a show level was really important. It’s that kind of segmentation in a really thoughtful way that advertisers are encouraging us to do, because they want to be next to this content, but they want to balance their needs to stay away from mature content.
The other thing is behind the scenes; I’ve been observing as a sales leader for years that advertisers want flexibility from their broadcast and cable partners. And we’re coming out of the gate trying to be as flexible as possible on things like terms. It’s where the ads go, and it’s how we do business where we’re paying attention to the marketers and their feedback.
Expand on that—is there anything unique to Netflix that you’ll be looking to implement in your upfront negotiations with advertisers?
Well, the nice thing about being a pure-play streamer is that I’m not going to show up with some convoluted math that tries to put all sorts of different currencies together. Some of the bigger, traditional companies are putting streaming impressions next to broadcast impressions next to digital display impressions, combining them with audience deficiency units. I’ve got the luxury of selling :15s and :30s in a streaming environment, in a very light ad load. I don’t have legacy concerns, so we can start this conversation with a clean slate. My goal is to make it as easy to buy and easy to sell Netflix as possible. I think that gives me an advantage.
What are you hearing from the market that’s rising to the top as the common trends or issues or themes for this year’s upfronts?
My early read is that it’s going to be a market that goes a little bit slower, not faster, because there’s still these lingering concerns about the economy, which means, in short, that marketers are still living with what I call short-termism. If you look through the lens of short-termism, you’re holding on to your dollars and you’re only releasing them when you really need to release them and really need to put them down. So with that kind of mentality in this marketplace, I think most marketers haven’t really contemplated what the ’23-’24 broadcast budgets look like. They’re just not quite as ready as early as we’d like them to be. It’s going to be a longer marketplace, and a little bit more drawn out.
You mentioned earlier that Netflix is not beholden to legacy selling structures, but also streaming comes with premium pricing. How are you balancing Netflix’s offering with marketers looking to optimize their budgets due to economic conditions?
Look, we are a premium player in the market and we’re going to look for rates that are premium. We have this beautifully light ad load, and engagement is second to none. There are so many people who talk about their subscriber numbers, but what I’m going to be talking about is our monthly active users and the depth of engagement.
Are people going to be looking to me for an efficiency play? I don’t think so. They’re going to be looking to us to make sure they have a complete footprint in the video market against a hard-to-reach and highly desirable audience, and we will charge appropriately.
Of course, some of that audience data has been held tightly by Netflix and I’ve heard advertisers hoping for a bit more transparency from Netflix.
We give them reporting on their campaigns. We’ve engaged with some research companies, so we can really understand the difference between the ad-free viewer and the ad-supported viewer. We've got some nascent information that I think we’ll be able to share on stage at the end of May. I’m happy to share as much as I possibly can without it being some stock-altering stat or something like that.
What do you think is going to be the biggest challenge that you and Netflix face taking the new product to market for the first time during the upfront?
The debate people will have is, “Where are we going to cut for Netflix?” The challenge will be on the buy side. We will get our unfair share of revenue. I don’t want my fair share, I want my unfair share. It’s like “A Star is Born”—for someone to go up, someone has to go down. I think we will be in the share-stealing business, and I’m not sure exactly where they'll take it from other than I think the immediate adjacency is conventional TV or vertical video. It’s not hard to imagine that we’ll peel some dollars off of a lot of places in order to fund Netflix.
That conversation around the transition of ad dollars from linear TV to streaming has been ongoing for multiple years. For Netflix there is no transition—you’re streaming. How do you see Netflix’s new inventory influencing that transition?
For many, many years, the biggest agencies have said, “We don’t have a TV buyer and we don’t have a digital buyer. We have video buyers.” For many years, it was a bit of lip service. Increasingly today, it's not. They really are video buyers.
You can call me streaming, you can call me connected TV, you used to call me over-the-top, but the truth is we’re TV. It’s just modern, better TV. And by the way, the audience is expanding, not contracting. It’s young, not aging. It’s the best of TV, so it doesn’t really matter what you call it. It’s just a superior video product.