Netflix will likely expand ad offering to more tiers, says Sarandos

Netflix is likely to deliver multiple ad tiers over time, beyond the Basic with Ads offering that is currently focusing on, according to co-CEO and chief content officer Ted Sarandos.

Speaking at a UBS TMT conference to analyst John Hodulik, Sarandos said that it was “likely” that Netflix would expand the offering to include “multiple ad tiers over time” without giving further details.

Sarandos said there was room to evolve how advertising works on streaming services to differentiate streaming with ads from linear broadcast TV.

“It could be delivered elegantly in a way that is better suited to what [people are] watching or what time of day they’re watching or…could we put on a multipart ad because we know exactly which part you’ve seen already? All those are things that I think we could toy around with and [the experience] will be better and better,” he said. “But our goal is we want to deliver a product that is amazing for advertisers and great for consumers, and so we have to do both of those things.”

Sarandos said Netflix would test out different ad loads and formats in “different territories and make sure that what we’re doing is positive for consumers and positive for the business”.

However, he said that Netflix will be able to grow its ad business initially through attracting more subscribers to the ad tier and thus making it more attractive to advertisers, rather than by charging a much higher premium for advertising inventory.

“In the CPM universe, you either grow CPMs or just grown Ms. So right now, we’ve got a lot of eyeballs to watch Netflix, and if they watch in the ad tier that will grow Ms,” he said, adding that “the better and better you get at the product itself, you can grow CPMs as well.”

Sarandos said it was “not necessary” for the content on the ad tier to be exactly the same as that without ads if a limited number of content deals did not allow for the inclusion of advertising, but added that “about 90%of watching is covered in the ad tier today”.

Sarandos said that the ad tier could help prevent churn, particularly by working in tandem with Neflix’s “paid sharing” initiative to convert password-sharing customers to paying customers.

“The ad tier gives a place for paid sharing to land. You think about potential for a softer landing for folks either who are paying for the first time or for who are looking, who have some economic strain today,” he said.

He said that most Netflix subscribers tend to “stick around” with the tier they joined, and that he was not concerned about cannibalising higher-priced tiers because “it’s not good for…to jam folks into a situation where they’re not happy.”