Netflix AVOD model - Part 2: Experts raise transparency of data & reach issue

When Hulu launched advertising on its platform, it offered consumers the option to pick the ad they wanted to see or to consume a piece of sponsored content. The idea was to do away with interruptions. Will Netflix come up with a differentiated and compelling ad experience, probably one that is less intrusive or obtrusive? How do you innovate on the advertising experience is important.

Adgully seeks to understand the Netflix AVOD model in this two-part series. Part 1 of the series published yesterday (July 25, 2022) sought to decode Netflix’s AVOD model and what it means for the OTT ecosystem. Part 2 of the series will attempt to answer questions like how will Netflix likely fashion its AVOD model? Will it be more transparent with data in order to rope in advertisers?

Also read:

Decoding the Netflix AVOD model – Part One

“We must always strike a balance between viewing duration and ideal ad frequency, or else our devoted users may abandon us, costing us subscribers and income,” says Ssoftoons COO Hansa Dangaich Mondal.

“Showing more commercials during every break results in fewer minutes watched, while showing fewer ads per break keeps the user interested for a longer period of time. We can eliminate the pre-roll ad to help improve revenue production while maintaining the maximum number of users. Less ads can also help us avoid bad comments in the app store and acquire more subscribers in the future. Displaying too few advertisements also fails to generate the money that a content provider is entitled to,” Mondal points out.

According to Teresa Cottam, Chief Analyst at Omnisperience, content that is knowledge-based works well. She cites some examples of advertising that works. “Sephora, for example, offered a 25-second skincare tutorial, which promoted the brand and engaged the customer. Gen Z are activists – they’re three times more likely than previous generations to believe companies should help improve society. So, talking about a brand’s social values can work really well, provided it is authentic and not just issue washing. Another example is that of Parade, which contrasts its offering against mainstream brands by embracing body positivity. But the takeaway here is that Gen Z will fact-check what brands are saying. So, a slick advert isn’t necessarily believed; they will dig deeper to discover whether what is being said is true. If it isn’t, they’ll call that brand out and vote with their feet,” she says.

According to Cottam, the passive model of slick, aspirational advertising that we’ve become used to doesn’t work anymore. “Tomorrow’s successful ad-driven model will transform the relationship not just between brands and consumers but between brands and the content platform provider – the winners will be those that combine great long-form professional content with this new form of quirky, authentic, fresh and interactive marketing-oriented entertainment.”

Netflix data

Netflix shares very little data about how many people watch the service. Studio executives have long complained about its lack of transparency, arguing that it puts them at a disadvantage in negotiating fair value for content. Does the streamer need to be more transparent with its ad-supported version?

“I’m not sure if the ad-supported model will impact the producers or the need for data in any ways. Freemium OTT platforms don’t give much data to anyone in India,” notes Uday Sodhi, Senior Partner, Kurate Digital Consulting.

Analysts are of the opinion that the streamer will have to share data if it wants advertisers.

Karan Taurani, Senior Analyst at ElaraCapital, agrees that Netflix has shared very little data, but that’s okay, because it’s the norm for an SVOD platform and they are paying a hefty fee for acquiring the content.

“So, they are practically not liable to share the data in terms of the views, clicks, and consumption metrics to the outside world. I think there’s no reason for any SVOD platform to share any kind of data, whatsoever. But once they will become AVOD, they will be liable to share data. So, a lot of data from Netflix might actually come out in the opening, which has never been the case earlier. I think this is also one of the reasons why these platforms generally don’t go AVOD. The likes of Amazon Prime, or Netflix generally don’t like to go AVOD because of this reason that they have to start sharing a lot of data,” says Taurani.

According to him, Netflix will have to share data if it really wants to keep advertisers – if not the gathered data, then at least some basic data to get a broader sense in terms of what the consumption metrics and the viewership trends are.

“Without sharing data, it will be tough to get advertisers who are sticky in nature. You might get an advertiser, sometimes for the last-scale property without sharing data that should not be a problem. To get broad-based advertising across all types of shows and clips, they will start to share data, which is a fairly new thing,” he adds.

Certainly, the streamer’s ad-supported version will need to be more transparent, says Ssoftoons’ Mondal.

“Advertisers will be unable to make OTT spending decisions in the absence of a globally agreed viewing statistic on video streaming services. Media buyers must also account for the increased reach that OTT provides over TV. Advertisers need data on genre, age, gender, and geography to profile today’s OTT audience. We desperately need figures to distinguish amongst OTTs, as well as metrics to compare (platforms) that will bridge the gap between OTTs and marketers and media partners,” explains Mondal.

Is AVOD the future?

AVOD is a reality the world is transitioning into. The entire ecosystem is poised for a change with Netflix standing at the vanguard of this post-oTT revolution. What kind of an implication will the Netflix ad-supported version have for other streamers and the entire streaming ecosystem in India?

Taurani believes that a lot of premium brands will be coming to a platform like Netflix because of the AVOD model, which will make very good inroads. “If you look at the TV buyers as a whole, I don’t think as of now there is any substantial decline; TV is co-existing with digital as of now, but we’ll have to monitor the viewership trends in the coming years because if the viewership numbers and the consumption patterns drop sharply, then it will have a negative impact. But currently, as we speak, no TV is broadly maintaining a chair. It’s kind of co-existing with advertisers even today.”

Given that Netflix is by far the most expensive OTT platform in India, it does not provide any additional services, says Mondal. “Subscriptions to Amazon Prime include not only video-on-demand programming, but also free delivery and special discounts on Amazon, Amazon Prime Music, and Kindle Unlimited. Amazon Prime also consistently licenses the most popular Bollywood films and offers content in numerous Indian languages, making it a considerably more appealing option for individuals looking for entertainment in Indian languages. Netflix continues to focus on fresher content, which is a positive thing, but it could focus more on producing Indian content while keeping Indian culture in mind,” she adds.

“SVOD was the single diamond in the VOD media crown at first. For an annual fee, they gave isolated consumers an infinite ad-free material library. However, SVOD is losing steam, making long-term growth questionable. The competition in this market is severe; membership costs are rising, and subscription weariness is unavoidable.In reality, fewer users are ready to pay for several platforms, and more may opt for the AVOD trend to reduce monthly expenditures. Online and mobile video, as well as ad-supported video on demand, will continue to develop and evolve, progressively eating into linear TV spending. AVOD has the potential to make strong cross-channel video strategies, a must-have for advertisers trying to enhance brand perception and share of voice,” asserts Mondal.

“If Netflix produces compelling content, which is massive in nature, there is a very strong reason for them to get a reasonable market share,” notes Taurani.

“I think, initially, it will be small. Broadcasts-based OTTs like a ZEE5 or a SonyLIV is making AVOD advertising close to Rs 150-200 crore in a market that is about Rs 7,000 crore. So, that’s around 2-3% of the market. Netflix should be much higher than either of these platforms in terms of numbers. And it may not even go the way like Hotstar, which is Rs 300 crore, and YouTube, which is somewhere close to around Rs 2,500 crore. But definitely, it will be somewhere in between the aggregators and the other broadcast OTT platforms, because they have got a very strong recall,” says Taurani.

According to Taurani, the ad inventory on digital per se, on a per property basis, is far lower as compared to a TV for some shows, which are compelling in nature. Typically, he adds, in a 24-minute or 30-minute TV show, you’ve got six minutes of ad.

“On digital platforms, that number is less than half in terms of advertisements. So, definitely there is a potential for the ad inventory to move up. In fact, that has been the growth driver for digital. So, having a two- to three-minute kind of ad in a half an hour web series should augur well for the customer and for the platform. And this is something new for the Netflix customers. Other customers are used to this situation right now in terms of watching the ads. Gradually, they can increase the ad time as well, but currently. But currently, two-and-a-half to three minutes of advertisement on every half an hour on the show should not be a challenge in terms of the customer experience. That’s the kind of advertising opportunity we are looking for. Initially, this is how they will test it and then they will kind of increase the timing post that after seeing the necessary feedback after analysing the trends in terms of what is the customer doing? Is the customer being repaid? Is the customer watching the entire show? Is he moving away? So, all those sorts of things,” says Taurani.