Here’s what you might have missed from Netflix’s Q3 results
Ahead of launching its Basic with Ads plan, the streaming service added 2.4 million subscribers. What else did we learn from its Q3 results?
Netflix's last financial results before it launches ad tier / Netflix
After two consecutive quarters of subscriber losses, Netflix has reversed the trend adding 2.4 million and now boasts 223.1 million worldwide. Its Q3 results are to be the last as a fully subscriber-based model, with it gearing up to roll out an ad tier from November 1.
In a call with investors, chief operating officer and chief product officer Greg Peters said the streamer isn’t anticipating big gains right away. Instead, its ad offering will be about incremental profit.
Basic with Ads will cost $6.99 a month in the US, which is $3 less than its ad-free basic plan and under half the price of its standard plan ($15.49). Prices vary greatly across the 12 launch markets, rather than being set on a standard price and adjusted for exchange rates. For example, it will cost £4.99 in the UK.
Peters said: “We [Netflix] modeled out essentially what we think the expected revenue is on a variety of different countries that we’re launching in to make sure that in a combination of the subscription price that we’re charging for basic with ads, plus that anticipated monetization, we’d roughly call it unit economics-wise revenue positive to neutral.”
Advertisers might be disappointed to hear that Netflix won’t be trying to steer its existing subscribers to switch plans and that it doesn’t expect members to switch either. This is about expanding its subscriber base by enticing non-members with competitive prices.
Demand from advertisers has been “very, very strong,” according to Peters. Netflix has almost sold out its inventory, although NXY and L’Oréal are the only advertisers publicly known. It was rumored that it had sold to one media agency, but Netflix quashed this rumor and made clear it has partnered with multiple holding companies.
Peters added: “We’re seeing a lot of the expectations that we built into our models come through in that actual sales process. So that’s great.”
At launch, Netflix will carry four to five minutes of ads an hour and its ad format is based on 15 and 30-second pre-roll and during-show spots. Last week it released an example 30-second pre-roll ad, which marketers told The Drum they thought was “stylish, modern and engaging”.
In terms of direct response ads versus brand campaigns, Peters revealed that Netflix would be “leaning more into that brand side of things where we can be more competitive.” He added that Netflix would be “leveraging its personalization capability” in its ad product to present titles and present ads.
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At launch, Netflix will offer advertisers basic targeting capabilities based on country and genre, some brand safety protection and from Q1 2023 impression data via DoubleVerify and Integral Ad Science.
Peters said: “We do have relatively basic targeting capabilities in terms of contextual targeting genre etc. But that’s, sort of, consistent with what we see with television as well, right?”
The streamer has been keen to stress that this is very much a first-phase offering, Peters called it a “crawl-walk-run kind of model.” Over the next couple of quarters, Netflix will layer in additional targeting capabilities to “check a bunch of boxes that they [advertisers] have,” he said.
Peters offered more insight into why Netflix selected Microsoft as its adtech and sales partner. He told investors that the two companies are “highly strategically aligned.”
“[Microsoft] had an approach that was similar to ours, which is that we want to launch and then learn quickly and iterate quickly and that there was a lot of flexibility both in terms of innovation around the formats and approaches.”
Privacy is a top priority for Netflix – another reason it picked Microsoft for its privacy-centered approach. In this vein, Netflix will only capture gender and date of birth at sign-up and said it would not be using that data at launch. It added that only Microsoft will be able to use the data and it will not build profiles for any other company. “We’re not using that data in any way shape or form for a profile building off Netflix.”