LOS ANGELES, CA – JUNE 12: Netflix CEO Ted Sarandos attended the FYSEE event on Netflix for “Squid Game” at Raleigh Studios Hollywood on June 12, 2022 in Los Angeles, California. (Photo by Charlie Galley/Getty Images for Netflix)
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Cannes, France – With the world’s largest advertising conference kicking off here this week, all eyes will be on Netflix for clues about how the streaming giant plans to abandon its ad-free business model to offer a cheaper subscription for the first time.
Netflix co-CEO Ted Sarandos is set to wrap up a week of seminars with a talk Thursday at Cannes Lions, which returns after a two-year hiatus during the pandemic, and has named Sarandos as Entertainer of the Year. The committee comes amid expectations that demand will grow for cheaper ad-supported broadcast subscriptions as inflation pressures people to cut costs.
Attendees will also be looking for clues about who Netflix will partner with in its entry into the advertising realm, which it plans to ramp up quickly to begin selling ads as early as the fourth quarter. Sources told CNBC that Netflix has met with Google, which makes most of its revenue from advertising. It has also met with Comcast/NBCUniversal and with Roku to discuss ad sales partnerships, as previously reported by The Information. NBC Universal and Google declined to comment.
“We are still in the early days of deciding how to launch an ad-supported option at a lower price and no decisions have been made. So this is all just speculation at this point,” Netflix said in a statement.
The company is looking to secure marketing partners in the next two to three months, quickly appoint a senior executive and assemble a team to manage the relationship with its partners, according to a source who requested anonymity.
Lots of festivals are taking great interest in making their streaming advertising money into entertainment broadcasts. In April, Netflix said it would offer a cheaper ad-supported option after it was first reported losing subscribers as competition in the streaming space intensified. Sarandos is scheduled to speak in Cannes before Netflix announces its next move.
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Disney+ is also preparing to launch an ad-supported service later this year. Paramount+ has an ad-supported level and a free ad-supported Pluto tier. Discovery Warner Brothers is expected to merge with a suite of streaming services, and Roku, with its growing advertising business. CNBC’s parent company, NBC Universal, is already offering a cheaper ad-supported subscription to its Peacock service.
The company will need to weigh the advantages and disadvantages of each of the potential partners. For example, Google has the advantage of being the largest advertising giant in the world, but it has less experience with entertainment content despite its recent rush into space.
Comcast doesn’t have as global reach as Google, but its NBC Universal unit is a leader in selling ads for this premium TV content. Several media companies also use the cable giant’s advertising technology platform Freewheel and could offer Netflix its own automated tools for purchasing ads. In addition, NBC Universal has expanded its partnership with Apple to sell its ads, setting a precedent for it in partnering to sell ads for premium content at scale.
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Another option is Roku, a longtime partner of Netflix that previously split from the streaming giant. As the largest television operating system in the United States, Roku has the advantage of its size in the United States, Canada, and Mexico and its visibility in ad-supported subscription trends.
Potential partnerships will continue with a long history of synergizing competitors in the media industry. As a content distributor and entertainment company, for example, Comcast regularly makes distribution deals with its competitors to NBC Universal. Roku is partnering with streaming apps to TKKT while offering its free, ad-supported alternative to the Roku Channel.
The stakes are high for Netflix. Its stock is down nearly 50% since it was warned about its contract subscriber base. Offering a cheaper ad-supported service is one way to prevent continued cancellations as people look to cut costs, but Netflix has to ensure that the ad experience doesn’t turn viewers off.
Disclosure: CNBC is owned by Comcast subsidiary NBCUniversal.