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Netflix CEO Reed Hastings once said, “Be brutally honest about the short term and optimistic and confident about the long term.” If nothing else, he has stayed true to his words as far as Netflix is concerned.
After facing a lot of heat from the market regarding its subscription-based business model, Netflix finally turned to ads. It launched ad-supported tiers this year to generate revenue at a very high CPM of $65. And it fell short.
But in true Hastings style, the streaming giant took this failure on the chin and turned it into a positive story – by returning unspent ad dollars to advertisers. Will this move make advertisers trust the platform more and have faith in the Netflix growth story?
Anand Gopal and Kavita Shenoy are back in the hot seat for the first episode of season 3 of the Voiro Podcast to discuss Netflix’s bold moves, Microsoft’s acquisition of Activision, CTV’s rising star and more. Read on.
The streaming giant has failed to meet the advertisers’ expectations and, in an unprecedented move, is returning money to advertisers for ads that have not yet run, as per a DIGIDAY report.
The ad deals were structured on a ‘pay on delivery’ agreement, where advertisers had to pay only for the viewers they reached. According to the same report, in some cases, Netflix has delivered approximately 80% of the viewership and is now allowing advertisers to take back the unspent ad dollars.
The bottom line is Netflix didn’t have to, but chose to return the money. As shocking as this move is, they are being transparent. Netflix doesn’t have a track record or a fully built advertising platform yet.
They are telling the market they are learning and want the industry to be forgiving. The best way for anybody to be forgiving is if they trust you to do well the next time. Another factor contributing to the under-delivery is that this is a digital world, and the behavioural aspects will not replicate that of a linear environment.
Netflix has a long-term play in this and is sitting on a tranche of subscribers who have moved to or signed up for the ad-supported model. They are playing on the basic human emotion of trust and walking the talk, which is a good move. 2023 will be a year of transparency and holding good on promises. This is a good way to build a solid business.
Microsoft is ready to battle it in the courts with the Federal Trade Commission (FTC) over the latter’s lawsuit to block the $75 billion deal for Activision Blizzard King. According to the report in Mint, the tech giant will reportedly argue that ‘it is an underdog in video game developing’.
Over several months, Microsoft has made its stance clear on the matter, saying the acquisition wouldn’t threaten competition because of its insubstantial presence in the mobile gaming market. Brad Smith, Microsoft’s President and Vice Chair said at the company’s annual shareholders meeting,
“(the deal) is fundamentally good for gamers, good for consumers, good for game developers, and good for competition. And the thing that probably disappoints me is not that we will have to present this case to a judge in a court because this is a case in which I have great confidence. I’m disappointed that the FTC didn’t give us the opportunity to even sit down with the staff to even talk about our proposal, to even see if there was a solution there, because I do think that if there’s one thing we all know, whether you’re a government or a business or a parent talking to your children, you will never solve a problem if you don’t try. And we are committed to addressing every regulator’s concerns, to offering constructive steps to address them.”
The acquisition by Microsoft was announced in June. They projected that they would close the acquisition in mid-2023. Microsoft is moving to acquire not just a division but Activision, Blizzard, and King.
Some say that the Candy Crush acquisition is the one that this deal rests upon because Microsoft doesn’t have a mobile presence. But Microsoft knew this was going to be hard.
Lina Khan, the chairman of the FTC right now, is aiming for big tech. The FTC has had a history of allowing big tech to become bigger and of not coming in the way of acquisitions potentially killing competition.
So, they have thrown their hat into the ring. There are many reasons why they are trying to block the acquisition, but the primary one is they are afraid that Microsoft will take all of these game studios and games, make them exclusive and force them into a subscription service.
But, some experts believe that will never be the case because these are already revenue-generating games. And when you spend $70 billion on an acquisition, you will not kill the revenue stream that underpins the valuation. It is value destructive to Microsoft, and the tech giant has already tried to signal to the market that it will not do it.
Traditionally we’ve seen the same things happen in the past. Everybody wants to integrate vertically at some point in time, and this is how the market functions.
If you were Activision, you would want to be part of Microsoft, not only because of the money but because there is a massive future together. But, at the end of the day, it’s a good thing that people are questioning these things.
While the headwinds of an economic downturn have all the big tech players tightening their seatbelts for 2023, the CTV market is buoyed by a bullish sentiment that’s likely to carry forward next year.
Tim Hill, Head of Partnerships at Interpublic-owned media agency Initiative, said in an article published in The Current,
“It really has been a tipping-point year,” where ‘50 percent of the clients’ ad spend is now dedicated toward digital video, with most concentrated in connected TV (CTV).”
Of all the trends in 2023, the rise in CTV advertising is the one that is most exciting because we will see a fundamental shift in how everybody thinks about how they spend on ads. The future is going to be linear and nonlinear.
The revenue from films is going to be impacted significantly and TV channels will have to figure out new revenue plans where affiliate revenue is not going to be a part of the pie.
Content owners will have to offer viewers a lot more agility in terms of running content across different application packages or advertising programs.
One thing is certain—linear and non-linear television will go through a renaissance, and this momentum will continue for a few years.