Netflix's Advertising Gamble: A Rollercoaster Ride

Netflix's Ad Business: A Rollercoaster Ride of Strategy and Uncertainty

Netflix, the streaming giant known for its subscription model, has been making waves in the advertising world. However, their journey hasn't been smooth sailing. After just a year, both Jeremi Gorman, Global Advertising President, and Peter Naylor, Vice President of Ad Sales, have exited the company. This marks the second significant shakeup of Netflix's ad business management team in less than a year, raising questions about their strategic direction.

Gorman, a former Amazon advertising executive and Snap's Chief Business Officer, and Naylor, with experience at NBCUniversal, Snap, and Hulu, brought impressive resumes. Their expertise lay in building large client relationships, a crucial aspect of traditional ad sales. However, Netflix's strategy leans towards programmatic advertising and performance marketing, where data-driven efficiency trumps client connections. This mismatch highlights a potential disconnect between the company's ambition and its execution.

The frequent leadership changes also reveal an undercurrent of anxiety and strategic indecision within Netflix. Their partnership with Microsoft has been characterized by fits and starts. After announcing their intention to end the collaboration in May, citing plans to build their own ad tech platform, Netflix surprised everyone in July by expanding their partnership with Microsoft to manage connected TV (CTV) advertising.

This apparent contradiction speaks volumes about Netflix's struggle to find a clear path forward. While building an internal ad stack offers benefits like better data, enhanced measurement, and improved campaign effectiveness, it also requires significant investment and expertise. Collaborating with giants like Microsoft can accelerate their entry into the lucrative CTV market but might compromise profitability.

This constant wavering leaves Netflix's advertising business direction blurry and progress sluggish. Their self-built platform isn't expected to launch globally until late 2025. While Amazon Prime Video has already made significant strides in its ad business within just six months, can Netflix keep pace amidst a rapidly evolving landscape?

The Return of Advertising

Streaming platforms initially emerged with an advertising model before pivoting towards subscription-based services like Netflix. However, the tides are turning again. Subscription fatigue is setting in as users grapple with multiple platform subscriptions and rising costs. 44% of users have canceled streaming subscriptions in the past six months, according to a Deloitte report.

With even established players like Netflix aggressively pursuing ad revenue, it signals a notable shift back towards advertising within the streaming industry.

Domestically, online video platforms have faced challenges with shrinking ad revenue. For instance, iQiyi's ad revenue has consistently declined, dipping from 8.3 billion yuan (28.6% of total revenue) in 2019 to 6.2 billion yuan (19.4%) in 2023. This contrasts with the fiercely competitive US market where multiple streaming platforms vie for viewers and ad dollars, forcing them to diversify their revenue streams.

However, a glimmer of hope is emerging in China's online video market. Brands are increasingly returning to online video advertising, particularly for drama series. Several platforms are also investing in programmatic advertising solutions to expand their reach and effectiveness in performance marketing.

This resurgence of ad revenue in the domestic market suggests that platforms like iQiyi could potentially recapture lost ground and attract advertisers once again. The future of streaming appears to be a hybrid model where both subscriptions and advertising play key roles, reflecting the evolving dynamics of the media landscape.