YouTube to Netflix, a Tale of Two Streamers
Fashionably late to the party, Netflix announced in its Q1 earnings call that it was open to adding a lower cost ad-supported model after years of resisting advertisements on its platform. In 2020 we wrote about our enthusiasm in AVOD after the market exhibited a 30% annual growth in revenues in the major service providers. Since then, US AVOD growth has admittedly slowed to ~18% in 2021, and a forecast of 9% in 2022 [source: Insider Intelligence report]. That said, we remain bullish on AVOD’s potential to exist both as a complementary offering to higher cost premium subscription services as well as in its own right.
If taken at face value, ceo Reed Hastings’ verbiage around the ad supported tier was unenthusiastic, positioning an AVOD option as one of a few band aids to alleviate their churn problem. And while leadership guidance has always reflected negatively on an ad model, Netflix is no stranger to brand appearances in its programming — even if it’s never bucketed them into “advertisements”. Remember Eleven’s fascination with Eggos in “Stranger Things”? The organic inclusion led to a large boost in Eggo sales, albeit unexpected for the brand. Ultimately the two companies papered a deal of cross promotions including a joint Super Bowl commercial intended to tease the second season of Stranger Things. In another world, Eggo would have additionally been the programmatic partner for the pre and mid-roll placements borrowing from YouTube’s partner program for premium content.
It’s true that Netflix is Netflix because of the lack of ads in user experience, but is there a world in which brand integrations are woven so intricately into the fabric of the content that the user experience isn’t interrupted? Is the opportunity size of that potential as a revenue driver big enough for it to be worth Netflix’s while?
The market size for global influencer sponsorship on YouTube was ~$6.6B in 2020 [source: HypeAuditor], a comparatively small sliver to YouTube’s programmatic revenues of $28B in 2021 up from $19.8B in the year prior. But while small in scale at the moment, advertiser interest in YouTube sponsorship placements are only growing; the percentage of brands using YouTube as an advertising channel via integrated sponsorship grew from ~30% in 2019 to ~45% in 2021 [source: InfluencerMarketingHub]. Layering that with the obvious assumption that advertisers would be interested in Netflix inventory (in terms of audience size, YouTube streaming represented 6% of total watch time for persons aged over 2 in the US in March 2022 while Netflix represented 6.6% of total watch time, [source: Nielsen]), integrated advertising feels like a viable opportunity — but by no means Netflix’s white knight. But could it serve as a natural complement to an ad tier, monetizing on the placements and cross promotions they’ve been doing organically for years? Time will tell.
