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Monday, September 19, 2022

Netflix, Disney+ Are About to Get Ads: There Are Risks


“We’ll be right back after these messages.” The age-old commercial lead-in takes on new meaning at a time when a bounceback for Netflix and Walt Disney  shares rests on the coming launch of ad-supported tiers for the two streaming leaders.

For Netflix, the goal is to reverse subscriber losses with cheaper plans. For Disney+, it’s to offset a recent acceleration in cable cord-cutting, reports Barron’s.

Much could go wrong in the near term for these companies and their rivals. A glut of advertising slots could push industry prices lower, especially if the economy weakens. Too many ads per hour could frustrate viewers. Too few could accelerate defections from full-price streaming tiers and cable.

Yet, if the television industry is successful, it could not only rekindle growth, but also pull back power that has been lost to the closed-off advertising economies of Google and Facebook .

“Connected television is what will bring down the walls of walled gardens,” says Jeff Green, founder and CEO of Trade Desk, which competes with Alphabet as an ad-buying platform and has partnered with Disney in streaming advertising. He means that streaming can match the targeting power of online search and social media while making the emotional connection of video. “A banner ad has never made you cry,” he says.

Microsoft, a rising ad player, should benefit, as well. Roku could have better odds than its collapsed stock price suggests. Walt Disney and Warner Bros. Discovery will benefit from rich content engines. Netflix, meanwhile, faces plenty of risk. And across the industry, more consolidation appears inevitable.



Advertising already abounds on streaming. What is changing now is the scale. Netflix dominates viewership. Its users took in 1.3 trillion minutes of content during the most recent TV season, roughly from late last September to early May, according to Nielsen data by way of BofA Securities. That’s nearly double the attention paid over the same period to CBS, the ratings leader in traditional TV, and five times that of the next-biggest streamer, Disney+.

Netflix just moved up the launch of its ad-supported service to November to beat Disney+ on Dec. 8. That means it will want to lock in advertisers by the end of this month. It’s expected to start at an “ad load” of four minutes per content hour.

Jessica Reif Ehrlich, a media analyst at BofA, predicts what she calls silent price hikes in the form of a quick rise in ads for each hour. “There’s no way it’s going to stay at three, four, five minutes,” she says. “Hopefully it won’t be what we see on linear, which is unbearable.”


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