Netflix Would Like To Show You Ads

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Netflix Would Like To Show You Ads
Netflix Would Like To Show You Ads

Netflix executives have been on a listening tour with many of the largest advertising companies as they plan an ad-supported version of their popular TV service. We know this because the press was given access to the meetings. Here is a selection of recent news stories and headlines:

Netflix is in contact with the Trade Desk.

Netflix intends to acquire Roku.

Netflix is in discussions with Comcast and Google.

Netflix is in discussions with Comcast, Google, and Magnite.

The majority of these headlines are true, though Netflix has denied any interest in acquiring Roku. However, Netflix has not decided on, or has not communicated, a comprehensive advertising strategy.

Netflix has stated that it will launch an ad-supported version of its service by the end of this year. It will be a separate tier, which means that current Netflix subscribers will not see advertisements in their programs (unless they choose to downgrade). There are more questions than answers beyond that.

Netflix must decide how it will advertise to customers. Does it only play commercials before a show or movie? Is there a commercial break? If it chooses the latter option, the company will need to go back through its library and find good spots for commercials in its original series. Because the company did not consider advertising when creating “Narcos” or “Stranger Things,” the shows were created and edited without them.

The company is working on a project to do just that — or at least to investigate what that might entail.

The company has yet to name a head of its advertising division or establish a large sales force. According to people familiar with the discussions, Chief Operating Officer Greg Peters has attended numerous meetings with partners.

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Netflix is working on a tight deadline. It claims to want to launch an advertising business by the end of this year. That is insufficient time to develop in-house advertising technology. The company will require assistance to meet its deadlines, which is why there have been numerous reports of talks with partners. While the company may eventually bring all of these tools in-house, it requires partners in the meantime.

“What we do first will not be representative of what the product will be ultimately,” Netflix co-founder Ted Sarandos said this week during a panel discussion at the Cannes Lions advertising festival.

The decision engine for this process is an advertising server. Based on the available information and inventory, it determines which ad to serve at what time. As the Wall Street Journal reported this week, the obvious candidates are Comcast and Google.

Comcast can provide Netflix with a comprehensive package that includes its subsidiary Freewheel. Netflix and Comcast, once adversaries, are now distribution partners, and Comcast’s NBCUniversal division would love to sell ads for Netflix shows. As TV audiences decline, the company requires more inventory. It helps that Comcast isn’t a serious streaming competitor (at least not yet).

Google is the world’s largest advertising company, and Netflix already uses some Google products. However, Google owns YouTube, which is Netflix’s main online video competitor. Would it want to hand over control of its advertising business to a company that may not want it to succeed?

Netflix requires a supply-side platform as well. Netflix could stick with Google or Comcast if they have a deal, or it could choose another provider (like the aforementioned Magnite).