Netflix has not been able to deliver on ambitious ad delivery guarantees for its new $6.99 partially ad-supported tier and is returning money to some of its advertising partners.
Netflix launched its "Basic with Ads" tier on Nov. 3. According to Digiday, it made "pay on delivery" arrangements with advertisers requiring the streaming service to return money for guaranteed campaign ad inventory that wasn't successfully delivered. This differs from typical TV advertising deals, in which broadcast and cable networks -- or now, streaming companies -- simply push inventory into the future in the form of "make-goods."
Mainly because it hasn't met early signup goals for Basic with Ads, Netflix hasn't delivered the agreed-upon threshold of inventory for a number of advertising partners, said Digiday, noting that for some campaigns, Netflix has delivered only 80% of the expected audience.
“They can’t deliver. They don’t have enough inventory to deliver. So they’re literally giving the money back,” an unnamed ad agency executive told the pub.
Some advertisers have agreed to make-goods on guaranteed inventory, Digiday also said.
Netflix stock is down nearly 9% in midday trading on the Nasdaq following the Digiday report.
Netflix hasn't yet commented.
Netflix is seeking higher advertising rates than other SVOD services with ad-supported tiers, originally demanding a cost-per-thousand-impressions (CPM) price of $65 -- about $15 higher than Disney Plus.
Even with the recent shortfalls, Netflix is still commanding a CPM price of around $55, with many advertisers still believing that the company will find ad momentum in 2023.
Ad agency executives have lauded Netflix's pay-on-delivery approach, but they're reportedly frustrated that the company hasn't done enough to promote Basic with Ads and build the subscriber base.
Basic with Ads is $3 a month cheaper than Netflix's standard one-stream-at-a-time "Basic" plan, but it downgrades screen resolution (720p vs. 1,080p) and provides only 90% of the broader Netflix library, with many programming deals not yet configured to account for ad sales.
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Daniel Frankel is the managing editor of Next TV, an internet publishing vertical focused on the business of video streaming. A Los Angeles-based writer and editor who has covered the media and technology industries for more than two decades, Daniel has worked on staff for publications including E! Online, Electronic Media, Mediaweek, Variety, paidContent and GigaOm. You can start living a healthier life with greater wealth and prosperity by following Daniel on Twitter today!