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Netflix: Stranger "Times" Ahead for Retail Media Networks?

Thomas Paulson
Oct 21, 2022
Netflix: Stranger "Times" Ahead for Retail Media Networks?

  • Tangentially related to our discussion on box office trends, Netflix offered a strong 2H22 outlook for subscribers this week and some insights into how they are thinking about their advertising opportunity which may have effects on CPG, retail, and commercial real estate. As a reminder, Netflix’s ad tier will start at $6.99 per month (compared to the basic non-ad tier at $9.99) and have 5 minutes of advertising per hour.
  • The company expects 2H22 subscriber additions will be around 7M (versus prior Street expectations of around 5M). Driving the improved outlook was content and new password-sharing restrictions. 3Q22 subscriber adds in the U.S. were +100K (bringing total subscribers to 73.4M) versus declines of -640K in 1Q22 and -1.3M in 2Q22.
  • Regarding advertising, Netflix Chief Product Officer Greg Peters highlighted the company's attractive targeting potential on company's 3Q22 update call, "we have 100% signed-in audience, fully addressable, fully targetable, and so we can start to layer in additional targeting capabilities over time." There have been multiple media reports that Netflix is seeking a $65 CPM for its ads. Additionally, there are analyst reports suggesting that its U.S. advertising revenues should reach ~$3B in 2026, but that comes largely from trading subscription revenue for ad revenue as the base migrates into the ad-supported tier over time.
  • We see the new ad dollars going to Netflix (and Disney’s ad tier) largely coming from FaceBook, YouTube, and other digital properties, which have "lost signal" resulting from Apple’s IDFA privacy changes as well as linear TV (non-sports, non-news). Thus, it’s a shift in spend by CPG and other branded advertisers, and not more advertising spend. This is also spending that could have otherwise gone to retailers' advertising businesses (revenue that retailers are counting on to support their profitability and stock prices). As such, connected TV (CTV) is a threat to that nascent retailer profit pool. (One important nuance here is that the Netflix / Disney ad dollars are more top-of-the-funnel, and the retailer ad dollars are more bottom-of-the-funnel.) Consequently, this is a story that we will be following closely.
  • Not only are Disney and Netflix expected to pull in new dollars from brand marketers for ad placement, but we’ve also read that product placements within the shows (cans of Coca-Cola and bottles of Michelob for example) are expected to ramp (that too is a form of marketing and sponsorship spending that will come from some other budgeted advertising expense).

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Thomas Paulson

Director of Research and Business Development, Placer.ai

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more.

He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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