Netflix‘s ad-supported tier, which costs $6.99 per month, has provided a new subscription option since it launched on November 3. Despite the reduced price of the tier, consumers are not coming on board in the way Netflix expected. The streamer has fallen short on viewership guarantees it made to advertisers, according to Digiday.
The report cites “five agency executives,” who laid out the shortcomings of Netflix’s ad-supported tier. In some cases, Netflix has only delivered about 80% of the expected inventory.
Since Netflix’s ad partners only agreed to pay for the impressions their spots actually received, the streamer must now reimburse buyers for the missing inventory. “They can’t deliver. They don’t have enough inventory to deliver,” one exec told Digiday. “So they’re literally giving the money back.”
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Netflix’s agreements differ from the standard on TV, where networks provide advertisers with “make goods” if they fall short on volume projections. In this situation, Digiday noted, some buyers asked for money back so they can reallocate it during the holiday season.
Was Netflix’s rush job a mistake?
In response to the ad shortfalls, agencies are questioning the breakneck pace of Netflix’s ad tier rollout. Its CEO Reed Hastings (pictured above) first proposed a reduced-price, ad-backed subscription during the company’s Q1 2022 earnings call in April.
Initially, Hastings suggested that the ad tier would be developed “over the next year or two.” At first, that seemed to be the plan. Netflix brought on Microsoft as its tech partner for the venture and hired experienced execs who could court brands and agencies.
Then, the rumors shifted. All of a sudden, Netflix had its new tier on the fast track, according to a September report in the Wall Street Journal. The widespread belief is that Netflix accelerated its big ad play in order to beat a competing Disney+ subscription to the market.
Six weeks, after that moved-up launch date, it’s starting to look like Netflix might have bitten off more than it can chew. The streamer’s stock dropped by nearly 9% after the news of its missed projections arrived.