Netflix with ads—looking back at the streamer’s first ad-supported year

Not too long ago, it seemed Netflix would never let advertisers appear next to hit series such as “Stranger Things,” “Wednesday” or “The Crown.” But less than two years after announcing its ad intentions, Netflix has persevered through a series of dramatic moves worthy of a series of its own. See our Year in Review stories here First, a quick refresher on the words of Reed Hastings during the streamer’s 2019 fourth-quarter investor call, when he was CEO (he’s now executive chairman): “We want to be the safe respite where you can explore—you can get stimulated, have fun, enjoy, relax and have none of the controversy around exploiting users with advertising.” Grab some popcorn and settle in for the saga of Netflix’s first year in advertising: The prequel Pre-April 19, 2022: Throughout its existence, Netflix had been staunchly anti-advertising. During the streamer's 2019 fourth-quarter investor call, Hastings mostly attributed Netflix’s ad aversion to the monumental task of building the infrastructure necessary to support advertising (more on that later), namely collecting the consumer data necessary to properly support digital ad capabilities. But the long-held opposition also seemed to uphold an unspoken rule that streaming was, until recently, the antithesis of traditional TV, and that uninterrupted on-my-terms consumer comfort was gospel. April 19, 2022: “Think of us as quite open to offering even lower prices with advertising,” Hastings said during Netflix’s 2022 first-quarter investor call. Rumors had, of course, begun circulating prior to Netflix’s about-face on bringing ads to its platform, but the news wasn’t delivered as an exciting new launch for the streamer. It seemed more like an alarm bell as Netflix reported it had lost 200,000 subscribers during the quarter, its first viewer loss in more than a decade. The OG streamer was forced to follow the lead of its legacy TV competitors that had already begun incorporating streaming ads over the preceding years (after discovering for themselves that the Netflix model they were chasing wasn’t sustainable indefinitely). Still, Hastings shared his skepticism on the call to invest in building Netflix’s ad capabilities in-house. Rewind: How Netflix can build its ad business (from 2022) Summer 2022: Netflix hit the road in talks with companies to partner on its ad tech. On the list of suspects were Google, FreeWheel and Magnite, but in a shock decision Netflix eventually went with Microsoft to serve as its partner in both ad tech and sales. September 2022: Netflix named Jeremi Gorman and Peter Naylor as ad leaders, serving as president of worldwide advertising and VP of ad sales, respectively. Many media buyers expressed excitement at the time over the appointment of familiar, seasoned faces to the streamer’s nascent ad efforts. But the executives joined as Microsoft had already been out pitching its impending ad tier to advertisers, causing friction with buyers from the outset with what critics called underdeveloped ad capabilities at industry-high prices. Look back: Netflix’s first ad execs come from Snapchat Check out the latest Ad Age events and award programs Chapter 1: The Launch Nov. 3, 2022: Netflix’s ad-supported tier launched in the U.S. for $6.99 per month, as well as internationally in the U.K., Australia, Brazil, France, Germany, Italy, Japan and Korea. The ad tier launched first in Canada and Mexico, on Nov. 1, and in Spain on Nov. 10. On numerous occasions, Netflix leadership urged patience with the scale of its ad tier. At a 2022 Ad Age streaming conference, Naylor described the streamer’s initial offering as a “minimally viable product,” but said that someday soon it might incorporate shoppable and interactive ads as well as options to work with creators of Netflix series. A similar sentiment had been expressed by Co-CEO Ted Sarandos at the 2022 Cannes Lions International Festival of Creativity. At an investor conference on Dec. 6, 2022, Sarandos described the ad tier’s launch by saying, “We just turned it on and it works,” and that the streamer wasn’t “patting ourselves on the back too hard” over the product reportedly built over just six months. Dec. 15, 2022: Netflix stock dropped 9% after a Digiday article claimed the streamer was allowing advertisers to “take their money back” after falling short on audience delivery by 20% in some cases. While multiple buyers told Ad Age at the time that the under-delivery was typical of any new ad-supported venture and expected of Netflix’s first outing, it nonetheless was met by skepticism over Netflix’s uphill battle to grow its ad tier. Chapter 2: The Upfront Pre-upfront: It was clear that the 2023 upfront market would be challenged as marketers approached spending with caution due to fears of a recession. For Netflix, buyers had a particularly long wishlist—mostly addressing a desire for better tech, transparency and scale. But they were also eager to see the digitally native company join in on the showmanship and grind of relationship building during the annual TV upfronts. Netflix was slated to conduct its first upfront presentation on May 17 at its Paris Theater in New York, filling Paramount’s long-held spot. In an April Q&A with Ad Age, Naylor said that “when all is said and done and you line up gainers, losers and even—we’ll be in the right column,” while announcing new targeting capabilities launching on the platform. Things got a bit more complicated when the Writers’ Guild of America began its strike against Hollywood studios on May 2 over pay and working conditions in streaming. May 10, 2023: Netflix delivered a late-night message to clients that it would no longer be holding its first upfront presentation in person, and would instead present a virtual show. A person with knowledge of the situation told Ad Age at the time that the move was made after the New York City Police Department expressed concern about the safety of hosting an event at the Paris Theater while WGA picketers marched outside. Some buyers told Ad Age it was a “rookie move” while other media companies continued with their live presentations. More: A guide to streaming advertising in 2023 May 17, 2023: Netflix streamed a prerecorded upfront presentation that turned what might have been an entertaining in-person event into a brief and well-produced package, including sizzle reels of upcoming content, an interview with the “Stranger Things” creators, a performance by Alicia Keys and executive updates. The streamer shared its first official audience metric for the ad tier—5 million global monthly active users—and announced new features, such as show premiere sponsorships, attribution measurement from EDO and the launch of Nielsen Digital Ad Ratings planned for later in the year. (Nielsen measurement would officially launch for Netflix on Oct. 2.) “I was pleasantly surprised by Netflix, which pulled a pretty controversial move going virtual in their first year,” a buyer told Ad Age after Netflix’s presentation. “Their taped show was packed with good-looking content and updates on their evolving sales model.” Read more: How Netflix fared in its first upfront Post-upfront: By numerous accounts, buyers were pleased with the progress Netflix had made between its first round of pitches in Nov. 2022 and its upfront. The streamer reduced pricing and grew its ad tier user base from the 5 million global monthly active users reported in May to 10 million in August (and has since reported the number at 15 million, although buyers have put the number of U.S. subscribers closer to 3 to 3.5 million). Perhaps most importantly, buyers expected Netflix would be able to deliver on audience guarantees moving forward. Chapter 3: The Reorg Oct. 3, 2023: Just when it seemed all was finally beginning to settle on the Netflix front, the streamer announced the surprise exit of Gorman as global ad president. Replacing her would be Amy Reinhard, a tenured Netflix executive who had held positions in content acquisition and studio operations. Industry reactions were split, with some optimistic that a Netflix insider would be able to accelerate the ad tier’s growth and others confused that the position had been given to an executive with no apparent experience in advertising. Check out the latest Ad Age events and award programs Oct. 17, 2023: Naylor and Reinhard were on the ground at Advertising Week New York, where Netflix’s footprint was very noticeable. During a packed conference session, Naylor unveiled Netflix’s plans to test live sports—an original event called “The Netflix Cup” that set Formula 1 racers against golf pros in a golf tournament that would feature brands—and be served to Netflix’s entire user base rather than solely the ad tier. The event, which streamed live on Nov. 14 with minimal hiccups, has seemingly reinvigorated excitement for the potential of Netflix advertising, which has always been centered around associating with Netflix content rather than getting a spot in an ad break. Nov. 21, 2023: Netflix partnered with Geico to create the first co-branded spot to run on its ad tier. The ad, which showed the Geico gecko behind-the-scenes filming Netflix’s lizard kids musical “Leo,” was a step forward toward the streamer’s long-promised creative capabilities that would rival the TV and film content it produced. The spot was paired with custom social and out-of-home advertising, all created by Geico’s agency of record The Martin Agency alongside Netflix Marketing Partnerships, production company Framestore Pictures and animation studio Animal Logic. Stay tuned for what the Netflix ads saga holds in 2024. See our Year in Review stories here

Netflix with ads—looking back at the streamer’s first ad-supported year

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