Netflix’s high CPMs are ‘difficult to justify’

Netflix will reportedly unveil its lower-cost ad-supported tier on 1 November, as the streaming platform attempts to prevent the loss of more than 1 million members by 2022. 

The new tier has the potential to generate $8.5bn a year globally for Netflix by 2027. Netflix has told ad buyers it expects to have about 4.4 million customers worldwide on its ad-supported plan by the end of 2022.

But with extremely high CPMs, minimal targeting and analytics with no third-party tracking, some are questioning the justification of over $60 per 1,000 viewers, which was reported by Variety last month.

“CPMs that are significantly higher than rival platforms may be initially achievable due to the novelty factor of advertising on Netflix” added David Cloudsdale, co-founder at Adalyser. 

“However, ultimately the market will decide. Without any third party tracking or response measurement it will be difficult to justify continued ultra premium investment just because 'it's Netflix'.”

Advertising will run roughly 4 minutes per hour of content. TV networks normally have a limit of 13-15 minutes of ads per hour. Netflix will also limit the number of times a single ad can appear for a user. It is also expected that commercials for movie content will be provided in a pre-roll fashion, not interrupting the watch experience.

The release date has been intentionally moved to before 8 December – the launch of the Disney+ ad-supported tier. 

In close competition, Disney has overtaken Netflix’s streaming subscriber count, as reported at the end of the June quarter, with Disney claiming 221.1 million (including Hulu and ESPN+) and Netflix owning 220.7 million streaming subscribers.

The market will decide

Microsoft, who have partnered with Netflix to deliver their advertising, have said it will be a “soft $65 CPM”, indicating that they’re not set on this figure.

"When prices for ads on Netflix were revealed, many were surprised to see CPMs far afield,” commented Aaron Goldman, CMO at Mediaocean. “But Netflix offers quite a unique value proposition for brands with massive global audiences, big-screen ad inventory, and digital closed-loop delivery. Today's TV giants and social walled gardens can only match two out of three for any given channel.

“Over time, the market will determine what ads on Netflix are worth. The blessing and curse of digital delivery is that results are immediately measurable. For now though, regardless of price point, brands that want to reach a lucrative and elusive audience would do well to test Netflix ads when they launch.”