Why Netflix and Disney and everyone else are bringing ads back to your TV

Reed Hastings was consistent, year after year. Every time someone asked the CEO of Netflix when he would introduce ads to his playback service, he insisted that it made no sense. Netflix was a better service because it had no ads, he said.

That’s when Netflix grew. Now it’s shrinking, and now Netflix says it will have ads: Last month, after announcing that its company had lost subscribers for the first time in a decade, Hastings told investors it wanted to introduce a lower-priced version of the service that would have ads “for the next year or two,” though the details were unclear. “I’m sure we’ll just go in and find out.”

There are so many things to do. This week, Netflix has increased its hours, telling employees that an advertising level could be implemented before the end of 2022.

All of this underscores a significant shift in the way streaming video companies view their business and how some people view television and movies. Television advertising, which seemed destined to be a relic, is suddenly very much alive again, even with services that in the past bet their identity on the absence of ads. Last year, for example, HBOMax started selling a lower price level with ads; Disney + is adding one of its own this year.

It’s a captivating turnaround for an industry that seemed to be moving away from ads as fast as it could, in part because it followed Netflix’s anti-ad leadership. But if you take a step back, there are two easy-to-understand reasons why streamers accept ads, willingly or unwillingly:

  1. Even in 2022, there is a huge amount of money in TV advertising, and it is still growing: Media agency Zenith predicts that advertisers will spend $ 65 billion on TV commercials this year, 4% more than last year.. Even in 2022, people are still watching a lot of TV programming. But more and more people are watching streaming services on their TVs: real-time streaming services now account for 30 percent of TV time, according to Nielsen. So advertisers want to fish where the fish are.
  2. Streaming wars are expensive to fight. All new services pursuing Netflix are injecting billions of dollars into programming to attract and retain their subscribers. In the past, networks and studios had multiple ways to make money with programming (ads, cable subscription fees, and syndication), but the new model eliminated all those in favor of a one-time rate for consumers. Re-adding ads is a way to make more money and / or increase profits, which are becoming more important to investors.

What’s a little harder to understand is why the real-time TV advertising experience, for the people who pay for the ads and the people who have to watch them, is still bad.

Conventional TV advertisers know exactly when and where their ads are running, and at least they feel like they’re reaching a lot of people with a single purchase. But while real-time playback platforms offer the promise of more data and better targeting, advertisers face a confusing variety of different programmers, ad companies, and platforms.

Meanwhile, streaming TV viewers will find unmissable ads that are often repeated several times per program, and often seem to be linked to TV shows or movies at random for no rhyme or reason. They are often too noisy, so much so that U.S. lawmakers have proposed regulating them. All this in a medium that had to be more personalized and intelligent than the old television. Instead, many seem as stupid and scattered as spam in your inbox.

“We’ve taken everything the internet has taught us about making the most shitty ads and put it on TV,” says Joe Marchese, a former Internet and TV ad executive who sold his TrueX company to Fox. in 2014) who now runs Human Ventures. , an initial investment firm.

“There’s a huge gap between how digital advertising technology has evolved and what it will take to succeed in a television environment,” says Dave Morgan, a longtime digital ad executive. of which Simulmedia works with conventional and streaming television advertisers.

Which makes it a little disconcerting that Netflix, which for a long time made ad-free streaming a staple of its brand, is now rushing to ads, seemingly without much planning and no apparent infrastructure. Ditto for Hastings’ earnings call comments suggesting he’d like to outsource much of his work to “other people. [who would] Make all sorts of smart ad combinations and integrate all the data about people, so we can stay out of it. ”This is because most people in the TV ad industry I’m talking to argue that the worst part of the streaming ad experience comes from the maze of intermediaries between advertisers and streamers, which often makes it difficult to figure out where, when, and how ads end up on your screens.

None of this coincides with Netflix’s history of making great efforts to control all parts of its service, from creating its own distribution system in its DVD days by mail to creating a system. sophisticated to offer streaming video. So Hastings has a plan that has been quietly working out, out of sight of the advertising industry, or is doing something fast to boost Netflix’s revenue and share price. Any scenario would be amazing.

Before you go any further: If you’re used to ad-free streaming on sites like Netflix, Disney +, and HBO, you don’t have to worry, as long as you’re willing to pay. All of these companies have or are working on a staggered service, where the more expensive versions will have no ads and the cheaper versions will have ads.

But many of the new, faster-growing services are explicitly built to carry ads, such as Comcast / NBCU’s Peacock, Paramount’s Pluto, and 21st Century Fox’s Tube. Technology-based TV companies are increasingly interested in streaming advertising as well: Amazon has something called Freevee, formerly called IMDb TV; Roku has its own free Roku channel, currently stocked with remnants of knives (and those Quibi shows you’ve never seen), but it may one day include Starz pay-TV channel programming.

None of which is necessarily bad. Programmers rightly argue that real-time streaming with advertising can give consumers more options about what they want to see and how much, if any, they want to pay.

And some advertisers say they are very pleased with the benefits that digital TV ads can offer. Sam Bloom, CEO of Camelot Strategic Marketing & Media, says he is spending about $ 200 million on streaming TV ads for his customers and is pleased that the technology allows him to eliminate some waste.

Roku, for example, uses “Automated Content Recognition” technology in its smart TVs, which allows it to keep track of what people are watching, regardless of whether it comes from a real-time or cable playback service. or even air television. This may sound scary, but for Bloom, it’s an advantage: it allows you not to show ads to viewers who have already seen your customers ‘ads, or it allows you to target customers who have seen ads from their customers’ rivals.

Still, even the most upbeat digital TV booster will admit that streaming TV ads have a lot to do. “He’s in an awkward teenage phase,” an executive from a major streaming technology company tells me. But with the arrival of money, it is not clear how it will happen soon. “Yeah, you’ll see a lot of tweets about how ‘I saw something and saw the ad three times and hated that experience,'” says an executive who runs a major real-time advertising service with advertising. “But that person still saw it.”

Thank you for your comments My recently tickets; I do not answer all your notes, but I do read them and from time to time I will include them here. And let me know what you think of this week’s column, or whatever. You can @jo a Twitter or email me: kafkaonmedia@recode.net.

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