Measurement and attribution will be Netflix’s top priority for programmatic advertising

The following article will take a closer look at how Netflix uses its advantages of rich content and long viewing time to drive its advertising business forward through programmatic transactions and expansion of partners, and analyze the challenges and solutions encountered in the process.

What's happening with Netflix's advertising business?

On August 20, Netflix announced that in the first half of this year, brand investment revenue increased by 150% year-on-year, with advertisers from industries such as tourism, automobiles, retailers, fast food and mass fast-moving consumer goods. This news boosted the capital market's confidence in Netflix's advertising business, and the stock closed at a record high of $698.54 per share on August 20. Netflix's stock price has risen 48% this year.

The growth of investment income is due to the upfront pitch held by Netflix in Manhattan in May this year. This is also the first time that Netflix has held an offline investment event. Not only did it invite stars such as Cameron Diaz and Jamie Foxx to the booth, it also actively showed its strength to advertisers: in 2023, Netflix's global subscribers watched a total of 183 billion hours, which is nearly 21 million years.

Netflix does have a lot of content trump cards this year, such as "Stranger Things", "Squidward", "Bridgerton" and "Wednesday", which are known as "Netflix's most popular shows ever". In addition, it will also broadcast two highly rated NFL Christmas games this year.

Looking at the current state of Netflix’s advertising business, I see two trends worth noting:

1. In terms of traffic scale, Netflix continues to increase the volume of programmatic advertising, with great strategic determination, and has even cooperated with competitors.
2. In terms of quality improvement, Netflix has opened up its partner scope and stepped up the infrastructure of CTV advertising, including traffic anti-fraud, effect measurement and attribution, etc.

01 Advertising business growth engine: programmatic trading

The Paris Olympics, which just concluded, was also the first Olympics to use programmatic trading to sell ads. For details, you can read my article “This is the first Olympics to sell ads programmatically.” Programmatic has become an important growth engine for Olympic advertising revenue, which has further boosted advertisers’ confidence in programmatic trading of CTV ads.

A new report from DoubleVerify and TVision shows that users’ attention to CTV connected TV ads increased from 49.2% in the previous quarter to 51.5% in the first quarter of this year, and CTV traffic continues to grow.

This is a good thing for Netflix, which is stepping up its programmatic strategy.

Plus, Netflix’s CPMs have dropped to $30 or even lower, well below the $60 price it was commanding when it first launched ads in 2022.

Taking all the above factors into consideration, Netflix has attracted more and more advertisers to launch programmatic advertising. Large advertisers such as online travel company Expedia, telecommunications company T-Mobile, Ford Motor, Mercedes-Benz, American Eagle Clothing and Novartis Pharmaceuticals are actively exploring programmatic advertising cooperation with Netflix.

Starting earlier this month, Netflix can sell its ad inventory through marketplaces from omnichannel ad platform The Trade Desk, Google’s DV360 and Microsoft’s Xandr.

Previously, Microsoft has been the exclusive partner of Netflix's advertising business. Since Netflix launched advertising commercialization in 2022, there have been advertising technology companies that want to cooperate, such as FreeWheel and Google's DV360.

However, Netflix had just started its advertising business at the time and did not cooperate with these two companies due to competitive considerations: FreeWheel is affiliated with the American media giant Comcast Group, which is a sister company of Netflix's competitor Peacock; Google's YouTube TV has also become a strong rival of Netflix.

But this time is different. In order to better control its advertising business and avoid over-reliance on Microsoft, on the one hand, Netflix plans to build its own advertising technology platform. On the other hand, Netflix is ​​expanding its list of partners, even cooperating with rivals such as Google, which is enough to show its determination to promote programmatic advertising .

I think for Netflix, as its advertising business continues to grow, only by accumulating user behavior data on its own platform can it better optimize brand advertising.

In addition to embracing more partners, Netflix is ​​also continuously expanding the scope of programmatic buying. Originally, advertisers only traded in the PMP (Private Marketplace) private market, but starting from November this year, Netflix will also start selling its advertising inventory through Programmatic Guaranteed Buying.

This transaction model is very similar to traditional advertising procurement: on the one hand, it can meet advertisers' needs to purchase high-quality resources, and on the other hand, the advertising resource positions and prices are determined in advance, which can ensure price and quantity. This model helps Netflix attract more brand owners who are not familiar with the details of programmatic bidding and further release high-quality advertising inventory on CTV.

02 Measurement and attribution will be the top priority in the next step

Chief Financial Officer Spencer Neumann said that opening up more premium traffic is the "number one request" from advertisers to Netflix. But Netflix is ​​well aware that to attract advertisers, it needs more than just scale, it also needs to provide industry-recognized metrics.

The latter has actually always been a problem that has plagued the development of CTV advertising.

While CTV does provide richer insights into viewer behavior and preferences than traditional linear TV, CTV is TV advertising, but it is delivered digitally, and advertisers often expect CTV measurement standards to align with mobile digital advertising, but this is not so easy.

The core challenges are mainly two points:

1. Measurement standards: Each streaming media can use its own method to calculate impressions. Due to the lack of consistency and communication between each streaming platform, cross-platform CTV measurement becomes more difficult. If it is based on households, it will be difficult to be compatible with mobile digital advertising, because the latter is based on individuals. If it is based on people, because CTV platforms use IP addresses to identify users, there will be multiple people watching ads from the same IP address, and advertisers will still be unclear about who is watching the ads.

2. The problem of omnichannel attribution: If advertisers want to accurately measure the return on advertising expenditure, they must develop a standard that covers all channels and platforms, making it easier to compare the advertising effects of different platforms, channels or campaigns. However, CTV attribution is a complicated process. For example, many people can use a remote control to switch back and forth between traditional TV and CTV networked TV, but because different types of TV do not exchange data, effect attribution becomes more difficult.

For Netflix's advertising business, every challenge is a hell of a challenge. Netflix is ​​strengthening its cooperation with advertising technology vendors to enhance advertisers' ability to measure results on its platform.

On the one hand, Netflix is ​​working hard to deepen its partnership with DoubleVerify and Integral Ad Science to ensure that brand owners' video ads are fully watched by real people and are protected from fraud/invalid traffic.

This year, Netflix also announced new partnerships with three measurement providers: Kantar, Cint, and NCSolutions.

The partnership with Cint and Kantar will allow Netflix to measure brand awareness, ad recall, brand favorability and consideration. NCSolutions has consumer data from grocery and drugstore chains, and Netflix is ​​working with it to help advertisers measure sales generated by advertising audiences.

By working with several Data Clean Room solution providers, Netflix intends to create a safer and more private environment. The analytics teams of advertisers and agencies can use this environment to understand their customers' consumer behavior, experience, and engagement. They can also bring their first-party data into the clean room and match it with platform data for measurement and calculation without exposing user-level data. Among them, Snowflake Data's data clean room solution is already available to partners, while InfoSum and LiveRamp's solutions will be launched in the coming months.

It can be seen that advertising business is the only way for Netflix to grow, but this road is crowded and there are a lot of competitors. This road is also long, and its advertising business is still in the infrastructure stage. As CFO Neumann said to investors: "The company's advertising business growth is good, but the base is too low. Advertising business will only become the main cash flow in 2026 and beyond."

Author: Dao Ke, public account: Dao Ke doc