Netflix is giving advertisers their money back – is it a big deal?

Netflix has been giving advertisers their money back this quarter for missing ad-supported viewership targets, after launching with incredibly high and “difficult to justify” CPMs. 

Buyers who spoke anonymously last week (due to the sensitivity of budget discussions) to PMW’s sister title Campaign US said the appetite to spend has cooled after scrutinising the ROI on the new advertising video-on-demand (AVOD) platform. 

The cost per one thousand impressions (CPMs) on Disney+ Basic is said to be between $40 and $45, while Netflix’s CPM is up to $55. This is lower than the $65 CPM Netflix was reportedly pitching a few months back, which was roughly the cost of a Super Bowl spot in 2022 — one of the most premium events in the ad calendar. 

To add to the dilemma of unpromised viewerships, the Netflix stock fell by 8% last Thursday afternoon (15 December) losing $11.5bn, adding to a total fall of 51% this year. 

The move to give money back has led some in the industry to question whether the streaming giant has enough inventory to deliver. However, Netflix giving its advertisers’ money back might not be as dramatic as it seems. 

“Netflix falling short on commitments to advertisers should not be seen as a fail,” stated Aaron Goldman, CMO, Mediaocean to PMW. “Other digital properties in similar positions would simply increase their ad load to make up for the shortfall. Netflix is keen to maintain the user experience and that's a good thing for brands.

“For what it's worth, offering make-goods for underdelivery is a very common exercise in the TV and premium video advertising space. There's even an acronym for it – ADUs or Audience Deficiency Units. Over time, Netflix will be able to more accurately forecast inventory avails and ADUs won't play as big a role.

“Most advertisers will want to wait until its tried and tested”

Netflix advertising agreements were initially set on a “pay on delivery” basis, and the company had agreed to release any unspent ad dollars at the end of the quarter. 

Whilst this isn’t an unusual method of AVOD ad deals, it does show Netflix is having some teething issues with its new ad-funded tier.

“After many months of speculation, Netflix's ad-supported model was always going to receive a lot of interest,” Steven Filler, UK Country Manager at ShowHeroes Group told PMW. “Launching with such a high price point naturally increases the level of scrutiny and advertiser expectation.

“With reports emerging that Netflix fell short of its ad-supported viewership guarantees and is allowing some advertisers to take back some budget to reinvest, you could argue Netflix is experiencing early teething issues. It was inevitable that there would be some challenges as it embarks on its AVOD business.

“But it doesn’t change the fact that Netflix represents a significant opportunity for brands and there will always be advertisers who want to jump in and test early. However, at this stage, I think most will want to wait until they are sure that the audience scale justifies the investment, and the channel has been tried and tested.”