Netflix to Add Ads. Why This Could Be a ‘Game-Changer’ for Your Viewing Experience

A hand holds a remote control in front of a television screen

Advertisements might not just be interrupting your favorite Netflix show in the future; they might also be a part of your favorite Netflix show.

Netflix executive Ted Sarandos announced Thursday that ads are soon coming to the popular streaming service. This will impact your viewing experience in a couple ways, said University of Virginia Darden School of Business professor Anthony Palomba.

Expect commercials breaks, yes, but also expect commercials to be woven into shows after the breaks end.

“I anticipate Netflix playing around with advertisements like we’ve never seen before,” Palomba said. “It could be that an entire show is an advertisement, which hasn’t been done in decades. That’s going back 50, 60, 70 years when gas companies and consumer product good companies used to fund TV shows and TV specials.”

Palomba has areas of expertise in audience analysis, entertainment consumer behavior and marketing, and media and entertainment firm competition. UVA Today caught up with Palomba to break down a big change to the streaming game.

Q. How have other streaming services involved advertisers within content?

A. Amazon Prime knows what TV shows you watch on Amazon Prime. They also know the brand of your toilet paper. Kind of weird when you think about it, especially when that starts showing up in one of the shows you watch on Amazon.

Amazon has data that they can use to inform their shows – the kind of cars their audience drives, maybe cars they want their audiences to drive, etc. They can begin to curate desired consumer lifestyle segments. I think you’re going to see this intersection of consumer lifestyles with media consumption and technology engagement more often. Firms are interested in better understanding consumer lifestyles and figuring out how to strategically engage audiences over the course of a day.

The streaming content wars, they’re kind of slowing down. Nobody ever really wins a content war. You’re perpetually playing defense, because you push to outspend your competitors, or become big enough to earn a handsome acquisition price from some other firm. You hope that the content that you purchase is enthralling and captivating and is “Games of Thrones”-esque or “Mad Men” or “Sopranos” or something like that.

So your ability to map out what consumers do away from your media service is a game-changer.

Q. How exactly do they do that?

A. Well, for one, advertising measurement firms as well as in-house research departments in streaming firms can secure anonymous credit card use information from credit card companies. They can use this information to understand how an advertisement for Target impacted Target sales, and map it against Zip codes for where there are Hulu subscribers or NBC viewers. Similar to this, there is also addressable TV ads, which allow for customized advertisements to targeted households.

Your viewing can also be tracked based on which video app was accessed on your smart TV. They can also look at lists of household subscribers, and they can look at who was tuned into that particular channel at that time.

This allows firms to begin to build themselves out as their own internal audience measurement firm, which I think is the next evolution among streaming services, as Amazon can already measure so many components of your lifestyle. Apple can track the products that you buy, and they have TV shows now that in part serve to cultivate a stronger brand presence. So, they have a sense of your hardware and they have a sense of your entertainment consumption.

Q. How does Netflix compare with its audience tracking strategies?

A. Netflix is remarkably data driven. They want to learn as much as they can. It’s an analytics company that wants to get it right and if you’re working with an advertiser, you can begin to set up when audiences are most prime or most open to advertisements and which advertisers might work best in which genre or which show.

Netflix has so much historical information that, once it begins to offer advertisements, it will be primed to track how audiences consume advertisements. Because it’s digital, right? When did people pause during this advertisement? What did they watch after? Did this advertisement force them to leave the show? Where did they land before watching this advertisement?

Netflix is able to measure literally every button you click. They can figure out how many times you searched for “Stranger Things” or whatever it is, because they track everything. There’s tons of that they can do. They can put advertisements in between the kiosks. Why not? The sky is the limit with a company like that. And frankly, advertising needs a refresher. We’ve been airing the same types of TV advertisements that we’ve been doing since the ’50s.

Q. What are some examples of branding within shows?

A. Subway, for instance, has created an entire Korean drama around the Subway shop. So, there is room, I think, for more captivating advertisements, which isn’t a bad thing. Most ads are forgettable and not interesting. If you’re working with a streaming service, it gives you creative space. You can curse, you can have more adult content and, frankly, you can probably reinvigorate your brand and give it an edge. Maybe make it sophisticated, right?

“Mad Men” wrapped up with Don Draper dreaming up the, “I want to buy the world a Coke” campaign. That was huge! What a great boon for Coca-Cola! It didn’t feel like an advertisement. It was an amazing plot point to an epic series. I can remember that more so than all the other Coca-Cola commercials I’ve seen.

Q. Before all of this, Netflix has been in the news for its plummeting stock. Are you sold on its future?

A. Full disclosure: I invested a notable amount of money into Netflix after its stock plummeted in the stock market. I believe very much in Netflix and I want to be upfront and genuine to your readers.

There are two reasons why I’m very interested in Netflix. One is the gaming channel that is coming. None of Netflix’s direct competitors directly offer gaming, as they often license content to outside video game studios. Additionally, this is interesting because it may or may not have advertising. We know that gamers are constantly exposed to product placement because you really can’t put an advertisement in the middle of “Call of Duty,” but you can have a crushed soda can by a soldier’s foot that has Coca-Cola on it. Adver-gaming and other types of immersive, Web3-based advertisements (e.g. Metaverse, NFTs) become possible on a digital streaming service.

The other reason I’m interested in Netflix is the ad-tiered supportive service. Having an ad-supported tier that’s available to audiences is remarkably key in them buoying their cash flows and financial statements and preserving their realization of being in the black. Because for so long, Netflix had been spending at an alarming clip. I believe every time they raised their subscription price by a $1, it was another billion dollars spent on content. They were not cheap by any stretch of the imagination. Therefore, by offering an ad-supported tier, I think this will restore investor confidence in Netflix.

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