Netflix Ad-Spending Strategy: Leveraging Engagement for Advertising Success

TFD – Netflix’s strategic shift towards an ad-supported model and expansion into live sports and original content is poised to transform its advertising approach. Learn how Netflix plans to leverage its engaged audience for advertising success.

After enjoying months as a Wall Street darling, Netflix, the dominating player in streaming, is slated to release its first-quarter results on Thursday.

However, analysts claim that the company’s long-standing, proven business model has contributed significantly to its previous growth and success. Netflix has been expanding and perhaps completely reimagining that company in recent months.

While Netflix is transitioning from an ad-free subscription service to a full-fledged ad-supported juggernaut, it has recently made significant bets in live sports, video games, and deals to license other providers’ content. Disney+, Hulu, Peacock, and Max (owned by CNN’s parent company Warner Bros. Discovery) are among the streaming competitors that aim to attract subscribers with original programming.

By encouraging customers who exchange passwords to create their own accounts, Netflix took a particularly risky gambit last year, but it paid off. The corporation declared in January that it had reached a record number of subscribers. This year, the stock has gained 31%, outpacing its rivals.

The benefit of Netflix’s password restriction is probably disappearing, though.

“Netflix has a clear advantage in the streaming competition. However, as password-sharing benefits diminish, it is unlikely to replicate the massive subscriber additions it saw the previous quarter, according to eMarketer senior analyst Ross Benes.

Instead, the success of Netflix’s makeover may be shown by Thursday’s financial results.

Netflix’s reinvention

Netflix was disappointed with last month’s Oscars; while leading its competitors in nominations, the streaming giant only won one prize, for best live-action short film. Moving forward, it appears that the corporation is straying from its previous reputation of investing its funds in producing high-end movies and television series that may take home those honors.

Following “Suits'” meteoric rise to fame on the streaming service in recent months, Netflix has hinted at its intentions to acquire more material from other studios. Famous sitcoms from the 1990s and early 2000s, such as “Seinfeld” and “Sex and the City,” are being revisited by new generations as they became available on Netflix.

“They’re getting a ton of viewership on both original content and licensed content,” Wedbush Securities equities analyst Alicia Reese stated. “It saves them money and is productive.”

This year, Netflix has also branched out into live and sports content, intruding on the territory of traditional TV. Netflix signed a 10-year, more than $5 billion deal to broadcast “WWE Raw” live in addition to airing the Screen Actors Guild Awards, the streaming service’s first-ever awards ceremony, in February.

Netflix has gotten inventive in the battle for viewers by teaming up with the massively successful action-adventure video game series “Grand Theft Auto” from Rockstar Games to better penetrate the video game market.

Greg Peters, the co-CEO of Netflix, expressed his excitement over GTA’s success in January. We held the top spot for mobile game downloads for multiple weeks, indicating that the numbers were significant not just for us but also for the mobile gaming industry overall.

Reese is confident in Netflix’s new course.

“Right now, Netflix has that winning formula,” the speaker stated. “They offer a wide variety of content at different price points to keep users engaged.”

TV with commercials once more

Reese said she believes Netflix also has other avenues of growth including the company’s newer advertising-supported subscription tier.

The ad tier, which costs $6.99 per month in the United States, significantly less than Netflix’s other subscription plans, has seen explosive growth since it was introduced in late 2022, according to the company. More than 23 million people use Netflix’s ad-tier, according to information released in January by Amy Reinhard, president of advertising at Netflix.

According to Reese, Netflix’s future development may depend on how well it does in the advertising market.

Regarding what Reese is hoping to see in Thursday’s earnings report, she stated, “I’m hoping they give a little bit more detail on their advertising tier.”

According to Peters, the company’s goal in January was to steal more advertising dollars from rivals who ran traditional TV.

Ad spending is known to follow engagement. We think we’re in a good position to take advantage of some of the advertising spend that moves from linear to streaming because we have the most engaged audience, he said.