A Radical Proposal to Save (ok Jumpstart) Netflix's Ad Business

Hint - steal ideas from competitors. It's the Valley Way

Netflix’s ads business appears to be growing slower than the company would like. After all, you don’t hire the top two ad execs from Snap, Jeremi Gorman and Peter Naylor, and push them out in a span of two years if you’re happy with where things are going.

It’s possible, as Matthew Belloni and Lucas Shaw pointed out on The Town recently, that Netflix has simply gotten what it wanted out of Naylor and Goldman, and is now moving on. Or, as several reports indicated, Netflix is building its own ad tech, and may have simply decided it wants to automate its ad selling as much as possible.

Here’s the thing. You can organize things however you want, but to build a big ad business in streaming, you sort of need two crucial things:

• Users

• Inventory

Right now, Netflix doesn’t have enough of either for its ad tier. You could argue that it just takes time, or that Netflix hasn’t marketed its ad-supported subscription service very aggressively (or at all). Or, it could be that it’s hard for people who have lived with Netflix for years as an ad-free product (one that defined streaming for many) to come to grips with trading down - even as ads has become far more commonplace in streaming.

Maybe Netflix gets there over time. Right now, YouTube is blowing past them in terms of connected TV viewership and inventory, while Amazon has suddenly flooded the market with avails.

With that in mind here’s a radical idea for Netflix to jump start its ad business:

• rip off YouTube,

• by undercutting them.

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A few weeks ago, Alex Sherman of CNBC.com wrote that Disney+ is considering adding some creator content to compete with YouTube. The challenge with that idea, in my view, is that not only would Disney have to get a significant number of creators to jump on board to make a dent, it would have to condition users to watch Disney+ more regularly. Not easy.

Netflix has massive scale, habitual viewership. and deep pockets.

What if Netflix decided to roll out a creator section, or tier, or channel? They could promise creators instant huge exposure both through its home page and algorithm.

And if that’s not enough, Netflix could offer something even sweeter: a bigger cut.

Famously, YouTube pays creators 55% of ad revenue earned from their videos, while YouTube takes home 45% (this ratio is flipped for YouTube Shorts). Years ago, there was a ton of grumbling about this take rate, and many creators hoped that a Facebook Watch or Vessel or TikTok or some other platform would come along with a better deal.

You don’t hear about that much anymore, since it became clear that in the content creator space, nobody pays more, and more consistently, than YouTube.

Could a profitable and aggressive Netflix change that?

For sure, it’s not easy to get creators and audiences to shift platforms, even if a level of exclusivity is involved. Some of you may recall when the gaming influencer Ninja was lured to Microsoft’s Mixer with a big check. He was back on Twitch within a year, and Mixer is no more.

Netflix would have to go big here - perhaps dangling large signing bonuses and view guarantees to the likes of Rhett and Link and Dude Perfect (Mr. Beast already has a big show deal with Amazon). It wouldn’t be easy.

But again, Netflix is awfully good at getting content in front of people - 280 million subs across the globe - which would surely be appealing to some YouTubers, even if they say they don’t care about ‘TV.’

For this to really work, Netflix would have to push new creator hub to both ad-free and ad-supporter tiers- which yes, would be jarring to some portion of the Netflix base. Yet I’d argue that people are accustomed to ads accompanying creator content. Plus, Amazon didn’t ask for permission - you don’t win in Silicon Valley by being polite. Ask Qwikster

Theoretically, Netflix could find itself generating a whole lot more ad inventory overnight. It could even make life easier on advertisers, who don’t always know where to put web video and CTV - by bundling them on the same platform.

“What we struggle with is, which team buys [what]?” Catherine Chappell, Head of Platforms and Investment Mediahub told me during a recent interview (check out the full interview - part of my ongoing series with VuePlanner - here. “Our best success is an omnichannel approach, and having a one video approach helps [on that front].”

Plus, let’s face it, YouTube and other social platforms’ wide-open nature still make some brands jumpy. “There is nervousness around the levers, and the idea that there is not enough rigor around what we are doing,” said Chapell. “Brands want tighter control, trust and confidence.” Netflix could exploit this mindset by creating a curated creator environment.

Lastly, Netflix needs to think big picture. Not only could that jumpstart its ad business - it might even blunt YouTube’s growth.

After all, Netflix executives have said they are competing not just with TV, but any time-consuming activity, from video games to sleep. YouTube has a stranglehold on video time for multiple generations. Netflix is the king of the streaming services. If it truly wants to rule video, it’s going to have to figure out the creator phenomenon one way or another.