Indepth: Netflix’s ad tier and measurement: Will other streamers follow suit?
Netflix has announced its ad-supported video-on-demand (AVOD) service in a handful of countries (India is not one of them, at present). As aptly pointed out by Tammy Parker, Principal Analyst with GlobalData, the pricing has been done in such a way that it will not annoy its investors. According to her, Netflix is taking a measured approach to its new AVOD service. “By not unveiling a disruptively low price or a frustratingly stingy AVOD discount, Netflix keeps its investors happy and leaves itself room to adjust pricing in the future, depending, of course, upon what rivals do with their own price points,” notes Parker.
“Netflix said it has nearly sold out of its initial inventory of ad slots for the global launch, which is not at all surprising given that advertisers are increasingly interested in connected TV services as the TV viewing audience, particularly younger viewers that eschew linear TV, gravitates to streaming services,” says Parker.
So, it is natural that Netflix provides steady data to advertisers. As a prelude to the AVOD launch, the streaming giant signed up with UK’s TV measurement agency Broadcasters' Audience Research Board (BARB) to report Netflix’s granular data. (BARB is in the business of compiling audience measurement and TV ratings in the UK. It reports viewing for more than 300 broadcast channels in the UK.) The measurement will start from November 1.
The streaming giant’s audiences being measured by an external independent body is a game changer from the point of view of advertisers and digital marketers.
Analysts welcome this move, as it will attract more TV advertisers to enter the world of AVOD.
Netflix signing up to BARB in the UK marks the first time the streaming platform has joined an independent ratings agency, says Orina Zhao, Senior Analyst, Ampere Analysis. According to her, the independent ratings from BARB will allow Netflix to justify the pricings of its advertising inventory.
“BARB will be reporting Netflix’s viewing figures from November 2022 in a move which coincides with the launch of the streamer’s advertising-funded tier. BARB will be able to list the viewing time of streaming services at both a service and programme level, which will allow us to compare Netflix’s viewership with BBC, ITV and other equivalent broadcasters. The independent ratings from BARB will allow Netflix to justify the pricings of its advertising inventory to potential buyers when its ad-supported tier is launched in November,” she says.
In terms of streaming measurement, this move may give Netflix an edge over its already-existing competitors, since, for the first time, data of a streaming service will be shared publicly, remarks Nikita Burman, Co-Founder, The Blue Beans and The Blue Digit. According to her, it will add credibility to Netflix’s shows and services, thus foreseeing a higher share of voice among the audience. Moreover, she adds, it will be a starting point for Netflix to make its space in the TV industry henceforth, competing with giants like BBC, ITV, Sky, etc.
It is a game changer as there has been a distinct lack of data from streamers, says analyst Paolo Pescatore. According to him, there needs to be a much more collective effort to collate consumer data to understand better their habits and behaviour.
“The lines are now blurring with people watching TV, and video across different devices – whether it is live, on-demand, recorded or downloaded for offline viewing. It is extremely challenging and one that needs to be cracked. Ultimately, there should be one form of measurement, but it will take a while to get, if indeed possible. There should be at least one for the streamers,” he maintains.
While the announcement will allow advertisers, competitors, and journalists to determine the success of various Netflix shows, it will also increase the value of advertising on the platform, says Nikita Burman. The move, she adds, is quite strategic, in time when Netflix is rolling out its ad-supported tier launching in November beginning.
Arguably, says Paolo Pescatore, this is not enough as users are accustomed to getting something for free with an ad-based service (without paying for a subscription). However, it does allow Netflix to retain its proven subscription formula and the entry point of £4.99 is enough to entice users to sign up. More so when you consider the huge catalogue of programming (excluding some titles due to licensing),” he adds.
According to him, Netflix’s growing subscriber base of more than 200 million will be an attractive shop window for advertisers and brands. “All key stakeholders will need to work more closely to ensure users are not bombarded with spam. Also, consumers will need to brace themselves for putting up with ads on a service that has been ad-free; this will be a cultural shock. We should not solely expect new users to sign up; some will downgrade or decide to come back to Netflix. The move is as much as about retaining users as it is about signing up new ones,” he explains.
“I don’t know how this move will affect globally because SVOD platforms don’t like to share data. They are very close-door in terms of the data they have, and only AVOD platforms share data for the benefit of advertisers. Definitely, transparency is needed in the streaming ecosystem, which is dominated by the global tech giants who are kind of trusted by the larger advertisers,” points out Karan Taurani, Senior Analyst at Elara Capital.
A significant move
Though it is only in the UK right now, it is a significant move not only for Netflix, but for the future of the streaming measurement. The increasing audience shift from linear television to streaming, especially in markets like the UK, necessitates the need for audience measurement.
It’s a significant move for Netflix, the leading platform in the global SVoD industry, to join the measuring scheme from a traditional linear broadcaster viewership company, says Orina Zhao. It shows Netflix’s presence in the public’s viewing space is already in a place that can be compared directly with linear TV channels, she adds.
“According to BARB’s September data, while public broadcaster BBC and commercial broadcaster ITV dominated viewing and accounted for 56.08 minutes and 32.08 minutes on average per day, Netflix topped free-to-air commercial broadcaster Channel 4, with 19.29 minutes compared to 16.45 minutes. Amazon Prime Video and Disney+ have also now made up a distinct share among the total viewing time of the British public, with 8.26 minutes and 7.14 minutes, respectively, following closely commercial broadcaster Channel 5. A comparable viewing time of Netflix and other SVoDs platforms with linear TV shows that SVoDs services not only have more subscribers than pay TV services in many markets (including the UK and India), but consumers are increasingly spending more time on SVoDs services than linear TV, too. This will significantly boost Netflix’s confidence in its ads inventory sale, and if such trends in the shift of viewing platform and time continues, more SVoDs will be able to compete directly with linear broadcasters, and we believe streaming measurement of SVoDs will become increasingly mainstreamed starting from Netflix to many other SVoDs moving towards advertising, and starting from the UK, to many markets including the US, Western Europe, and others where SVoDs continue to drive subscribers and viewership away from linear TV,” she explains.
The move to offer an ad service of some kind was not part of the company’s script. Clearly it has been forced upon, says Paolo Pescatore.
He fully expects some users to be frustrated and cancel altogether or even move up the pricing tiers. Managing expectations will be important by ensuring the right ads are served otherwise users will cancel, he says. According to him, ultimately, the shift towards streaming will negatively impact linear TV networks and free-to-air broadcasters, who are heavily reliant on advertising as the main revenue source. “This could prove to be the final nail in the coffin for these players. Make no mistake, this is a significant move that takes Netflix in direct competition with free-to-air broadcasters around the world. This will attract interest from entertainment shows like ‘Strictly’, ‘The Masked Singer’, et al, to consider making moves towards distribution via the streamers,” observes Pescatore.
According to Paolo, it is apparent that the streaming pandemic party is well and truly over. “During this time, we saw a rapid increase in consumer adoption fuelling subscription revenue. Conversely during a recessionary period, users will be forced to make some tough decisions regarding the need to keep on paying or signing up to a slew of services. Adding an ad tier helps Netflix diversify its business model further, offering something for everyone which should resonate with a broad range of users.”
Will the Netflix move bring greater transparency across streaming? Will services in other parts of the world follow suit or continue to develop separate initiatives?
According to Orina, Netflix joining in BARB’s viewing time measurement will provide greater transparency and more understanding of the viewing time across streaming and linear, on different SVoD platforms, and on different programmes.
If viewing trend towards SVoD continues, more SVoDs will be confident in comparing their viewing figures with linear broadcast TV with the same metrics in the same lens, she says.
“Traditionally, subscriptions and ARPU are the most important performance indicators for SVoDs. However, with many SVoD-only services moving to develop an ad-funded tier and hybrid services stressing more on the expansion of the free user base, viewing time and advertising revenue are getting increasingly important for the growth of online streaming platforms. If SVoDs can prove their prominence and sizes through a direct comparison with linear TV, it will bring compelling evidence to digital marketers and companies looking to purchase online advertising which will benefit the overall revenue generating prospects of online streaming platforms. Therefore, I believe more SVoDs will follow suit if such benefits are proved from Netflix’s initiative,” she says.
According to Nikita Burman, the Netflix move will prompt the rest to follow suit. We can expect other leading streamers continue to develop separate initiatives.
When a giant moves a leg forward, it creates an impression in the ecosystem, says Nikita Burman. “So yes, other services across the globe may consider this move profitable, also for themselves, either in collaboration or through independent initiatives. Having said that, it’s also predictable that other companies will wait to see how this move responds to Netflix’s business strategies, to learn from it before moving ahead.”
The privacy factor
Netflix has treasure-trove of first-party data. With its ad-supported version coming soon, Netflix will need to balance the competing demands of advertisers wanting data and users’ privacy. Will it breach Netflix users’ privacy?
Orina Zhao feels that it is highly unlikely that Netflix will breach the terms of services required when consumers sign up subscription contracts.
Agreeing with Orina, Karan Taurani says that there are different packages for this. “Those who want to maintain their privacy or who can afford it can go for an ad-free plan. This plan is more for consumers who can’t afford the SVoD plan, and they would want to go for a subsidised price, and that’s why they are opting for the ad model. There is no privacy issue. It is a different market altogether,” he explains.
For a move like ad-supported streaming, Netflix would require defining specific KPIs for the advertisers, points out Nikita Burman. Hopefully, she adds, it will come with its own set of rules and policies for both advertisers and the streaming giant not to compromise its user’s privacy.
A BARC for streamers?
India is a vibrant streaming market, and as such audience measurement is important for all the stakeholders concerned, especially marketers and advertisers. Is the industry in need of a stand-alone measurement for streaming platforms just like BARC is for TV?
Orina Zhao says that industry-level efforts are needed for such a cross-sector measurement agency.
“India has one of the fastest growing online on-demand streaming industries in the world. According to Ampere’s consumer survey (N=2,000, generally representative of age and gender), the average daily viewing time on SVoDs services is already higher than scheduled TV channels, at 1:02 hours and 40 minutes respectively. If we can grasp a clearer understanding on Indian consumers’ viewing on different platforms and on different devices, we will be able to better measure the traction and value of the SVoDs services in India. It does require efforts and actions from the whole industry or state-level to materialise such cross-sector synchronised viewing measurement,” Zhao adds.
Soon, India will have its own independent third-party measurement gold standard, feels Nikita Burman. Adding further, she says, “The exponential growth of streaming services, especially during the pandemic, gave rise to some third-party platforms to define metrics for streaming services in the US. And it does make sense, considering the sizable chunk of money that goes into advertising and marketing on streaming platforms. It is quite possible that sooner or later, India will be on the bandwagon to have an independent third-party measurement gold standard that provides advertisers with the confidence and accountability to fully commit to spending in a medium across the multitude of available digital touchpoints.”
As of 2021, the OTT audience in India stood at 353.2 million, points out Keerat Grewal, Partner, Ormax Media. “The Indian OTT market is, hence, poised for growth, but given the well-known price sensitivity of Indians, the growth for OTT will come from the non-SVOD segment, which was about 243 million, that is, 68.7% of the total OTT audience base. Once the AVOD competition heats up, platforms they will need a business currency of ratings to maximise their ad revenues,” adds Grewal.
On the other hand, Karan Taurani doesn’t think that there is a need for any kind of measurement system globally for streaming platforms. “I am not saying that people don’t trust traditional mediums. TV platforms don’t have the capability of measuring in terms of who has viewed their programme for how much time and what is the consumption pattern of it, because they don’t distribute the content themselves. But OTT platforms are digital in nature; they are in complete control of the entire consumption pattern: who is watching the platform for how much time, etc. I don’t think the streaming ecosystem needs a measurement system as compared to TV, which is the need of the hour,” he says.
Taurani, however, strongly feels that there should be a standalone measurement service for streaming platforms in India, because the India market is very fragmented.
“Of course, in terms of the dominance or sheer revenue size, global giants are the larger ones. But you do have multiple home-grown streaming platforms, either from broadcasters or telcos, or production houses. Therefore, there is a need for a proper measurement system in place. But when it will happen is the question, because measurement systems involve a lot of investment. BARC is a marquee measurement system we have for TV. It is primarily because of the investment from broadcasters, agencies, and distributers. So, it is a proper support system that is built by putting the entire ecosystem in place. The digital ecosystem will be huge in terms of agencies, advertisers, platforms, languages, etc. It is very widespread in a country like India. So, it will be a challenge to get a measurement system here. Nonetheless, it will be very helpful to have one in a country like India as compared to other countries which are more dominated by only pure-play global giants and don’t have any kind of local players who have scaled up,” he says in conclusion.