"The traditional divide between linear TV and OTT is disappearing, as is the line between digital and linear TV advertising." -Anupam Gupta, 4C
Netflix’s recent decision to run program promos for Netflix Originals ahead of other content ignited a wave of industry speculation that the platform could be prepping its audience for an eventual rollout of a new brand advertising model. Such a move is, indeed, worthy of speculation. But perhaps even more revealing than Netflix’s new experiment is the industry’s exaggerated reaction to it.
Netflix’s rollout of interruptive promos for its own content rightfully raised eyebrows within the industry. Given Netflix’s vast subscriber base and deep customer insights, many have speculated that the platform is perfectly positioned to capitalize on the tidal wave of linear TV dollars that are about to flow into the digital realm in the next two to five years. Others, such as GroupM’s Rob Norman, took a more thoughtful approach to the news in pointing out that Netflix’s new promo test could be in service of a variety of end goals, from simple deepening of audience viewership to the development of a compelling business model within lower-income (non-U.S.) markets.
All speculation aside, one thing is clear: The enthusiasm with which Netflix’s new experiment was greeted shows a real appetite among brands for precisely the type of ad inventory that Netflix could offer. And why not? There’s no question that Netflix could offer exceptionally competitive inventory to marketers if it so desired.
The traditional divide between linear TV and OTT is disappearing, as is the line between digital and linear TV advertising. A number of industry players—including AT&T-Time Warner, Comcast-NBC, Disney, Hulu and others—are eyeing this inevitable convergence and jockeying for position to claim the massive TV ad budgets that are set to go digital. Amazon, for example, recently clarified its intentions in the space with the news that it’s planning to launch a free, advertising-supported video service for the estimated 48 million people who use its Fire TV devices. If Netflix were to declare its intent to compete for these TV dollars as well, it would jump straight to the head of the pack in this fight.
The prospect of advertising revenue powering Netflix also paints its previous strategy around producing owned content in new light. No doubt, Netflix’s nearly $8 billion in spending on original content has earned it new subscribers and loyalists. But it’s also given the platform irrevocable worldwide rights to distribute that content, opening up massive addressable markets around the globe. As subscriber numbers plateau over time, the potential advertising dollars swirling around those known audiences could become hard to resist.
Time to Experiment
No matter the path that Netflix pursues in terms of an ad model (even if that’s no path at all), the platform is clearly in experimentation mode, and that’s a good thing. In fact, marketers would do well to take a page from Netflix’s book when it comes to their own OTT advertising strategies.
The fact that Netflix’s slight head-fake toward advertising caused so many brand leaders to begin salivating is telling. Marketers want this type of addressable video inventory. In fact, they’re demanding it. However, opportunities in this realm are still in their infancy. The future of TV advertising is being written as we speak. The next two to five years are going to be rife with experimentation, pivots, progress, setbacks and refinements.
Despite this state of upheaval, now is not the time for marketers to be stepping back and awaiting further instructions on OTT. The consumer shift to these environments has happened. Brands are right to be enthusiastic about this space, and they can’t stand by and wait for all of the Is to get dotted and Ts crossed. Now is the time for testing, learning and iterating.
Brands these days know a lot about their audiences via their first-party data, and this data should serve as their springboard into the OTT world. Marketers need to apply this data to their current TV investments to see what’s working when it comes to reaching their target audiences, and what’s not. That latter bucket—the part that’s not working—represents resources that can be funneled toward the establishment of a learning agenda in the OTT space. Investigate how the various platforms work. Run some real campaigns. Measure the results. Refine and run another campaign. Above all: Learn.
The kind of inventory marketers encounter in their OTT exploration might not be the kind they’ve seen before. And that’s as it should be. Although we might not know exactly what the winning OTT advertising formula will be, we do know that the ad model of the future will not be the ad model of the past. It could be simple commercials before OTT shows and movies on platforms like Netflix, Hulu and Prime Video, yes. But it might also be an evolved sponsorship of programs. Or product placement within the content itself. Or some new take on interactive TV programming. Whatever it is, it will require experimentation.
It’s still early days in the OTT advertising space. The best strategy for brands today isn’t to wait and see. It’s to establish a learning agenda and focus on how your organization is going to adapt as the opportunity evolves. Netflix, Amazon, Hulu and others will settle into their places within the TV advertising ecosystem in time. The marketers who ride the waves with them, rather than following distantly in their wakes, will be the ones poised to make the most of tomorrow’s scalable, addressable viewer audiences.
Anupam Gupta is Chief Product Officer at 4C. For almost two decades, Gupta has led product strategy and growth planning initiatives for technology companies. 4C is global marketing technology company that delivers a unified platform for audience discovery, media execution, and performance analysis.