1. Netflix Picks Microsoft
In a decision that continues to shock the media universe, Netflix announced that they would be using Microsoft to power their new ad-supported tier. Industry rumors had initially focused on The Trade Desk and then Comcast and Google.
While the amount that Netflix will make from advertising is anyone’s guess—ditto the form said advertising will take—it’s pretty safe to say that it will be in the hundreds of millions if not billions.
Meaning a whole lot of money was at stake.
Why it Matters
Let’s start off with why this decision seems to be garnering so much head-scratching: Microsoft is eternally uncool.
Remember that viral video from the mid-00s about what an iPod would look like if Microsoft designed it?
They’ve never really outlived that.
(Raise your hand if you’ve ever heard anyone say “Oh, you still use Office?” in the same tone of voice as “Oh, you still have dial-up?”)
So there’s that and the fact that Xandr still has the scent of A&T all over it and the massive #fail the telecom giant’s foray into the TV business turned out to be.
Then there’s what seems to be the fairly obvious main reason Netflix chose Microsoft: they were cheaper. Much, much, much cheaper because they can afford to be at this point—Microsoft’s Q2 2022 revenue was up 20%, with net income increasing by 21%—and whatever hit they took on the deal can be written off as the cost of (re)entry into the TV business.
Which brings us to a likely ulterior motive.
Netflix, which is in deep shit in terms of finances and murky waters in terms of its future position in the industry, is probably looking for an exit. And Microsoft, as noted, is likely looking to get back into the TV game.
If you recall, before there was Roku, there was Xbox, and the interface that let us all stream Netflix to our TV sets via an actual app back in the day. Microsoft more or less abandoned Xbox years ago, though many signs point to the fact that they now regret that decision and want to get back into the TV business.
There’s also the very profitable server thing, where Netflix transfers all its files to Microsoft’s Azure servers from AWS.
So add that in too.
Now what Netflix is giving up by picking Xandr, which does not have its own direct sales force, is the ability to get up and running in something close to real time.
This may not matter all that much to Netflix as it’s unlikely they’re going to need to do a whole lot of selling—if anything, they are going to have to beat potential advertisers off with a stick, given the desirability of their audience and the scarcity of their inventory.
But let’s go back to the whole “the future of Netflix is murky” thing, something I suspect many of you may be surprised to read. (Or not.)
Netflix backed themselves into a corner several times over. Let’s look at their three biggest mistakes:
- Launching in over 130 countries, in many of which, only a small sliver of the population has the resources to pay for a subscription TV service, ad-supported or otherwise.
- Trying to roll out 150 new originals in a single year and handing the reins for that to someone whose success had largely been in the sort of non-fiction that was the polar opposite of Netflix’s prestige comedies and dramas, which then created the widely-held impression that much of what was on Netflix was crap.
- Not preparing Wall Street for the inevitability that subscriber growth would eventually slow down because just about everyone who wanted what Netflix was offering would already have it. (Netflix has around 66 percent penetration in the US. By comparison, smartphones as a category have about 80 percent penetration.)
That said, Netflix still has a strong brand identity and many loyal fans. So Microsoft has plenty of runway to turn them around. Only, to go back to my original point about cool or the lack thereof, many people I am talking to are highly skeptical of Microsoft’s ability to do so.
“Oath” is the word I am hearing quite often.
As in the AOL + Yahoo thing Verizon once tried to make happen.
And while Microsoft had nothing to do with that debacle, point taken.
Two side notes:
- We may finally be able to do away with FAANG, an acronym that never made sense. Netflix has never been in the same league as Facebook, Amazon, Apple and Google, all of which are multibillion dollar companies with multiple lines of business and massive revenue streams.
So, we could just default to GAFA, the acronym Europeans have been using all along, or, if you want to throw Microsoft in there (they make far, far more sense than Netflix) you have MAGMA (H/T Evan Shapiro for that one.)
- We will likely see the launch of linear channels on Netflix and other SVOD services. In researching our upcoming report on the FAST market, just about everyone we spoke with agreed that it was only a matter of time until the remaining SVOD services followed the lead set by Paramount+ and Peacock and launched linear channels for their (extensive) library content. (This would be in addition to VOD, not instead of.)
The thought being why would you make someone choose a different episode of “The Simpsons” every 22 minutes when you could just give them a Simpsons channel? The other assumption is that ad loads on those linear channels will be higher than the ad loads on originals and sell for lower CPMs—if nothing else, network TV shows are cut for commercial breaks, so it’s easy to insert them, versus streaming originals, which are not.
What you need to do about it
If you are Microsoft/Xandr the task is both daunting and simple: do a stellar job launching Netflix’s advertising product, creating something as brilliantly disruptive to the current CTV advertising ecosystem as Netflix was to cable television back in the day.
Your second task is, in conjunction with Netflix and (ideally) Disney and HBO Max, create a series of standards for the CTV ad market similar to those the IAB imposed on the digital ad market back in the day that makes it massively simple to buy advertising across multiple CTV platforms, thus giving brands permission to shift more of their ad spend to streaming.
If you are one of the runner ups, remember that the fact that you were also a Netflix competitor was always going to be an issue and they would likely not be an easy client to work with. (/understatement.)
If you are an industry observer, resist the urge to write about how choosing Microsoft is further proof that Netflix is no longer cool.
If you’re everyone else, get out your popcorn, we’re just at the end of E1 and this series still has a ways to go.
2. Better Measurement For Social Video
While we were all stressing about the future of television advertising, a seismic change has been going on in the way consumers learn about new products, which should ultimately change the way we look at the value and purpose of television commercials.
I’m talking about the way that social video has replaced television commercials as the primary way consumers learn about new products and services.
Allow me to explain.
Why it Matters
The postwar Pax Americana period of the 1950s, 60s and 70s saw the launch of hundreds of new products and product categories, most of which were designed to be labor saving devices for consumers, “housewives” in particular.
Given the unavailability of the internet at the time, the only way consumers could learn about these new products was through advertising, TV advertising in particular, as it was able to reach tens of millions of viewers all at once.
Look at many of the commercials from that era and you’ll find that they are explaining the product category even more than they are selling that particular brand. “Here’s a machine that is installed in your kitchen and washes your dishes for you! Imagine the time you’ll save!”
That’s all changed though, and the vast availability of data, especially on CTV, means that most ads are either about selling a specific product or making sure consumers continue to feel good about products and services they know well.
Which is why consumers turn to social video when they want to learn about new products.
For one thing, social video is not limited to just 30 seconds, so they can go into more depth. By nature, social video is also interactive, so consumers can see what other people, not just the influencers, have thought about the product.
Which is why it is well worth noting that thanks to an update of Tubular Labs’ Consumer Insights product, brands can not only track consumer behavior on Amazon and Walmart after seeing a particular video, they can understand consumers’ post-viewing search and web browsing behaviors too.
This is important in that for many new products, the path from “watched the video” to “bought the product” is not an immediate one. Consumers want to research, consider and then research some more before committing to a purchase.
So there’s real value in understanding their post-video path—what keywords they search, what sites they visit—as a way of understanding both how they view the product, what their concerns are, what alternatives, if any, they consider too.
What you need to do about it
If you are a brand with a new product, especially a DTC brand or a brand new product category, then chances are high you are making use of social video. That means Tubular’s Consumer Insights product will be an excellent tool for you.
Yes, you can always rely on metrics like “engagement” and “clickthrough” but those numbers are so easily gamed. Better to understand what consumers actually do after they see the video and what their path to purchase actually looks like.
If you’ve been ignoring social video because “our consumers aren’t 22 year old kids”— bad move. Social video is used by all age groups, intentionally or otherwise—videos often index high in search results and TikTok isn’t just the domain of high school students.
So ignore it at your own risk, because anyone who sticks around long enough to watch the full video, is most definitely a prospect.
Alan Wolk is co-founder and lead analyst at the consulting firm TV[R]EV. He is the author of the best-selling industry primer, Over The Top: How The Internet Is (Slowly But Surely) Changing The Television Industry. Wolk frequently speaks about changes in the television industry, both at conferences and to anyone who’ll listen.
Wolk's Week in Review is an opinion column. It does not necessarily represent the opinions of Fierce Video.