Video streaming giant Netflix has said that its ad-supported subscription offering has seen a good response from brands and advertisers. According to a top company executive, the new offering will help the platform to build its ad business while increasing its subscriber base.
"The initial response that we're getting from a brand and an advertiser perspective is quite strong. So we feel quite confident that as we grow into this and we have more subscribers over time on these plans, at least initially the unit economics are going to be quite good. We don't see this as a sort of building in that, call it the CPM side. So much more is that we're actually building the total amount of volume on those plans and then the total amount of revenue," Netflix Chief Operating Officer and Chief Product Officer Greg Peters told analysts during the Q2 earnings call.
Ad revenue, Peters said, will be a small part of Netflix's total revenue mix initially, but it has the potential to grow substantially over a period of time. Peters also said that there has been a lot of excitement in early discussions with media agencies. He also said that the ad-supported offering will be a win-win deal for all.
"They've wanted to connect with the titles, incredible content that Ted's (Sarandos) team was putting out there. And I think we also share a perspective on what is a great experience for consumers and for advertisers. So when you think about the kind of advertising we see, frequency caps, what's a great ad experience, we're noticing a high degree of alignment there."
Netflix recently named Microsoft as its technology and sales partner to help power its first ad-supported subscription offering. Peters noted that the ads that are served on Netflix's ad-supported offering will come through Microsoft. "So that's an exclusive arrangement with them. But one of the reasons that we're partnering with Microsoft, there's a bunch of fundamentals," he added.
Microsoft, he said, has the technical capacity, which is complementary to Netflix's go-to-market capacity. "But a key component of what we liked about this partnership was that there was sort of flexibility in that innovation orientation that I mentioned before. And so they very much, I think, are approaching this as an opportunity to work together to collaborate and to sort of evolve both the technical capacity and also sort of what the experience is and what the go-to-market approach is. So we've got lots of flexibility to work together there and evolve that over time," Peters said.
He also said that the ad-supported subscription offering will help Netflix to target price-sensitive consumers who have never signed up for the service. It will also help Netflix regain some of the old subscribers who have cancelled their subscriptions for multiple reasons.
"Some of those are folks that are currently watching Netflix, but they're using another paying member's account credentials, right? So those all, I think, represent opportunities for us because we're bringing a wider range of prices through the ad-supported offering, a lower consumer-facing price to be able to attract a broader set of members. So that's sort of very consistent with our wide range of pricing and our general goals there. We think that's great for consumers. It's good for us, obviously," he added.
Peters said Netflix wants to have the right pricing model and keep it simple from a consumer-facing perspective. He also said that the ad-supported offering will be rolled out first in countries with mature advertising markets.
"We're launching first in the countries that have sort of the more mature ad markets and we feel more confident in the ad monetization, then we'll sort of explore next tiers of countries over time. So that's a dimension of growth," he stated.