Everything you need to know about Netflix advertising plans
Hello and welcome to Protocol Entertainment, your business guide to the gaming and media industries. This Thursday, we take a closer look at Netflix’s plans to bring ads to its service. Also: New leadership for Crunchyroll, and the mini-metaverse.
Netflix Ads: The How, When and Why of the Massive Change Coming
Netflix co-CEO Reed Hastings shocked the streaming world on Tuesday by announcing his company’s potential plans to launch an ad-supported tier. Hastings acknowledged on Netflix’s first quarter 2022 earnings call that it had vehemently opposed ads on Netflix in the past, but the company’s recent struggles appear to have been severe enough to change tack. notice.
While the cat may be out of the bag, much is still unknown or unclear about Netflix’s adoption of advertising. Here’s what we know and what can be read between the lines about the company’s advertising plans.
Netflix will not force anyone to watch ads. The company will add a new, cheaper service plan that includes advertising, but will also retain ad-free plans for its existing subscribers.
- “If you still want the ad-free option, you can have it as a consumer,” Hastings said. “And if you’d rather pay a lower price and are ad-tolerant, we’ll accommodate your needs as well.”
- This dual model has been a proven success for Hulu, which started out as an ad-supported service before introducing an ad-free tier in 2015.
- Hastings specifically called out Hulu as proof that ads work for video subscription services: Hulu ended 2021 with 40.9 million paid subscribers, up from 35.4 million a year ago.
- Hulu’s average monthly revenue per subscriber was $12.96, which is about the same as its ad-free monthly tier price. This is despite the fact that Hulu’s ad-supported tier only costs $6.99 per month, is often discounted to just $2.99, and also comes in a bunch of cheaper bundled configurations.
- In other words: Hulu can make just as much money from an ad-supported subscriber as it does from its more expensive ad-free tiers.
Announcements are coming, but it may take a while. Netflix is famous for testing, testing, and refining its service’s features, and the company frequently A/B tests features that ultimately don’t make it into the final product. Don’t expect to see similar tests for ads, as the company seems to have made up its mind.
- “I don’t think we have much doubt that it works,” Hastings said, again emphasizing that the ads work for Hulu, Disney and HBO. “All of these companies have it figured out, I’m sure we’ll just go in and figure it out, as opposed to testing it, and maybe doing it or not doing it.”
- We don’t yet know exactly when Netflix will roll out their ad-supported tier, but it may take the company a while to get everything set up and ready.
- It also means investors will have to be patient to see any impact on Netflix’s bottom line. “It would take place over a few years, in terms of material volume,” Hastings said.
The ads are really focused on international growth. Netflix has apparently hit a ceiling in North America, where it lost 640,000 subscribers in the first quarter. However, a more concerning aspect of this week’s earnings report was a decline in subscribers in all global markets except Asia, where it signed a modest one million new customers.
- International markets were supposed to be Netflix’s growth engine in the future. But the company has struggled to gain a foothold in many countries, often unable to match the lower price of local competitors or Amazon’s deeply discounted Prime Video service.
- An interesting nugget from this week’s earnings report: Netflix admitted it lost 700,000 subscribers when it suspended service in Russia following the country’s invasion of Ukraine.
- That’s a drop in the bucket, considering Netflix has been available in Russia for six years, when the country reportedly has 34.6 million broadband subscribers.
- The ad-supported plans could help Netflix catch up overseas by signing up subscribers for a low monthly price, then reaping the rewards as those international ad markets mature.
- The focus on international growth is also incorporated into the way Netflix approaches video ads. The company does not seek to build local ad sales teams in each of its markets, but instead relies on third parties to facilitate ad sales and targeting.
- “We can be a simple publisher… and [get] monetized…by a range of different companies that offer this service,” Hastings said.
Crunchyroll CEO Colin Decker is stepping down and longtime Funimation COO Rahul Purini is taking over the combined Crunchyroll-Funimation business as president. Sony Pictures Entertainment President Keith Le Goy made the news official in an email to staff this week, writing, “Our anime business is stronger than ever and remains a critical part of our overall strategy… We are really excited about the growth opportunities in manga, e-commerce and mobile games.
Decker recently shared with Protocol his perspective on what makes a video subscription business successful, saying it’s not just about producing shows. “You’re in someone’s realm of deep understanding,” he said. “Every aspect of their life, their point of view, their hopes, their dreams and their fears. What are you going to do to super-serve them? »
Meta’s Quest headset gets a Ghostbusters game which is produced by nDreams in partnership with Sony Pictures VR. There’s no word on timing or exclusivity just yet, and given the Sony connection, we might expect the title to appear on the company’s PS VR2 headset as well.
Meta announced the title on Wednesday as part of a Quest game showcase event, which also included a bunch of other new games, including Resident Evil 4: The Mercenaries, Red Matter 2, and NFL PRO ERA. In addition, Meta gave an update on a long-awaited title: Among Us VR will arrive on the App Store Quest before the end of the year.
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In other news
Sony is also eyeing in-game advertising. After reporting earlier this week that Microsoft is considering offering in-game ads for free Xbox games, Insider reported Wednesday that Sony is considering the same for PlayStation.
Sling TV is now run by a former cable company. Gary Schanman previously held positions at Charter and Cablevision, so he knows a thing or two about the struggles of the pay TV industry.
The Pokémon Company is consolidating. The joint venture that oversees the Pokémon franchise announced Tuesday that it will acquire Millennium Print Group, the North Carolina-based company responsible for helping it print and manufacture its hugely popular trading cards.
Spotify is closing the Greenroom Creators Fund. The fund, which was supposed to support creators using Clubhouse-style live sound, may never have paid out any money, according to Podnews.
Amy Hennig returns to Star Wars. The former creative director of Uncharted is working on a Star Wars game in partnership with Lucasfilm Games and its studio Skydance New Media. Hennig previously worked on a canceled Star Wars title at Electronic Arts’ now defunct Visceral Games.
D-Link appears to be building a wireless adapter for Quest headsets. A leaked manual suggests the new device will help with wireless streaming of PC games. What’s interesting about this from an industry perspective is that Meta is leaving it to a third-party manufacturer, clearly leaving PC VR gaming in the rearview mirror.
Deezer goes public in a SPAC deal valued at $1.1 billion. The French music streaming service claims to have 9.6 million subscribers.
The petition seeks to remind Apple of Final Cut Pro. More than 100 film editors and post-production professionals have signed an open letter to Apple CEO Tim Cook asking him to do more to promote Final Cut Pro.
Welcome to the mini-metaverse
If you need more proof that the term metaverse might be a bit overhyped, consider this: the other day I received an email with the subject line “Is SaaS the mini-metaverse?” The pitch in a nutshell: Because companies are doing so much of what used to happen in the office on Slack and similar platforms, they’re already “bringing us closer to the reality of working in the metaverse.”
How Slack and others are changing the nature of work is an interesting topic, and I suggest you sign up for Protocol’s Workplace newsletter if you want to learn more. However, claiming that Slack is a proto-metaverse platform is like calling a barista a food delivery service. If you squint hard enough, they look vaguely alike. But then you take your coffee and end up with a really bad aftertaste. Lesson learned: tip better and don’t believe the hype.
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