Streaming device with Netflix and Disney+ ads.
Since the launch of Netflix’s on-demand service in 2007, streaming content providers have primarily generated revenue through subscription fees. However, going into 2023, the streaming service industry seems poised to shift toward revenues through advertising-based video on demand (AVOD). Already both Netflix and Disney+ have premiered ads for their newly launched ad-supported tier subscriptions.
On the heels of new service tiers from the industry’s top two service providers, the percentage of U.S. viewers watching content from at least one AVOD service is on pace to rise from 48% in 2022 to 55.8% by 2026. Netflix has already estimated that AVOD revenue will account for at least 10% of the company’s $30 billion+ annual revenue within two years. If these new revenue strategies pay off as intended, other service providers will surely follow suit.
For now, what industry leaders like Netflix and Disney+ are doing in 2023 provides businesses with a preview of what streaming service advertising will look like in the next few years. This guide covers recent developments in Netflix and Disney+ ad formats and delivery.
Key Takeaways
After nearly 15 years of subscription-based revenue generation, the streaming industry is shifting toward AVOD.
Leading this foray are Netflix and Disney+, both of whom recently launched ad-supported tiers of service.
Netflix and Disney+ are attempting to expand their market shares with lower-cost AVOD plans and will offer ad buyers audience targeting features and programmatic purchasing this year.
Netflix Ads: What You Should Know
Netflix launched an ad-supported tier for subscribers, “Basic with Ads,” on November 3, 2022. At $6.99 a month, “Basic with Ads” gives subscribers a 30% reduced-cost option for one supported device. This puts Netflix in the same price range as network ad-supported Peacock and Hulu. Presently, “Basic with ads” is available in 12 countries:
Australia
Brazil
Canada
France
Germany
Italy
Japan
South Korea
Mexico
Spain
United Kingdom
United States
Netflix’s ‘Basic with Ads’ premiere ad for L'Oreal playing before an episode of ‘Emily in Paris.’
“Basic with Ads” has some catalog limitations (5-10% depending on regional licensing) and does not permit downloads for offline viewing. The service provides video quality up to 720p/HD and plays an average of 4-5 minutes of advertising per hour. Ads appear at the beginning and end of programs, as well as at intervals of approximately 10 minutes throughout, and run for 15-30 seconds each.
The hourly maximum of 5 minutes puts Netflix on the low end of ad volume for AVOD services, roughly comparable to HBO Max and other premium network streaming apps. To further differentiate the service from competitors and traditional TV ad viewing, “Basic with Ads” also maintains a frequency cap on individual ads of no more than once per hour or three times per day.
Ad Cost and Delivery
Netflix currently sells ad inventory on the new tier at a cost-per-mille (CPM) of $60-65. This price range potentially makes Netflix the most expensive ad vendor in the streaming market. Buyers must commit to one-year contracts of at least $10 million. However, industry analysts predict prices and minimum commitments will come down within the first year of launch.
Advertisers can purchase Netflix ads directly through Microsoft’s demand-side platform (DSP) for analytics and advertising, Xandr. The platform allows purchasers to configure programmatic ad buys and campaigns at locked-in prices for frequency and placement. For ad buyers not using Xandr’s DSP, Netflix is offering standard media insertion orders.
Ad Targeting
Although it is still pending release, Netflix has confirmed that “Basic with Ads” will eventually offer ad buyers an audience targeting feature. Drawing on data collected from users during sign-up, Netflix will allow advertisers to select audiences according to six parameters:
Genre
Country
Age group
Gender
Content rating
Local time
In addition to audience targeting, “Basic with Ads” will also offer the option to buy ad inventory for content by rank.
Disney+ Ads: What You Should Know
Disney+ released an ad-supported tier on December 8, 2022. Distributed through several partner bundle programs, the service costs $7.99 a month. To date, just over 100 companies, including Target, Starbucks, and P&G, have run ads on the platform.
Disney+ new service plan options.
Disney’s ad-supported plans have a slight edge in features over Netflix’s “Basic with Ads.” Plans give subscribers unlimited access to the company’s entire catalog in Full HD, HDR10, 4K Ultra HD, Dolby Vision, and Expanded Aspect Ratio with IMAX Enhanced. Users can create up to 7 profiles per account and stream content on a maximum of 4 devices concurrently.
Disney+ ads run between 15-45 seconds, and the total ad time per hour is 4 minutes. Preschool-rated content runs ad-free. Simultaneously with the release of ad-supported service plans, Disney raised the price of its premium ad-free service from $7.99 to $10.99 per month. According to a market poll from October and November 2022, 23% of existing subscribers plan to change from premium to ad-supported plans, resulting in a service downgrade for the same cost.
Ad Costs and Delivery
The baseline CPM for Disney+ ads is $50. However, experts predict rates will rise as more purchasing options and targeting features become available in the future. In the summer of last year, Disney partnered with The Trade Desk to sell ads programmatically on the company’s DSP. Through The Trading Desk, ad buyers have access to all of Disney’s streaming subsidiaries, such as Hulu, ESPN+, ABC, Freeform, ESPN, National Geographic, and FX.
Ad Targeting
With the release of ad-supported plans, Disney also announced that Disney+ will soon share data and ad-targeting capabilities with Hulu. When these features come online in April this year, ad buyers will be able to target audiences by age, gender, and location.
Additional expanded features for Disney’s DSP will include bidding for programmatic ad spaces and purchasing for the 18+ market segment without a narrower age range. Disney plans to automate at least 50% of the company’s total ad sales by the end of 2024. Automated sales accounted for 35% of total ad sales at the close of 2022, and analysts predict that the rollout of recently announced DSP features will likely help Disney accomplish their 2024 target.
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Contact Penthera today to learn more about maximizing the effectiveness of your ad tech stack.
