Netflix needs advertisers. Advertisers really need Netflix.

CTV has led some brands to ignore reality

Much of Hollywood has been relishing in Netflix’s recent stumbles (maybe too much, as well chronicled in Recode’s Peter Kafka). Nobody should be celebrating more than advertisers and ad buyers. Because as much as Netflix may suddenly need a second revenue stream – stat – traditional TV brands need Netflix to create a whole lot of ad inventory asap.

Even as the big media companies were cheering the recent news that HBO and Disney and finally Netflix were all opening up ad tiers – advertising can’t be stopped! - it doesn’t change the fact that a massive amount of TV ad space is set to evaporate, and isn’t getting replaced by CTV. At least not on a one to one level.

Why so negative? Well there’s the simple fact of math. Historically linear TV has averaged 20 something minutes of TV ad time per hour, or far worse in the land of basic cable. The first thing that any of these new players – Peacock, HBO, Disney, etc – will tell you is they barely have any breaks. If one service says it only has five minutes of ads per hour, well, the others are going to four, or maybe less. That means for every linear viewing hour that shifts to CTV, 15-plus minutes are gone. You can’t shove a $70 billion of TV ad into a container that only holds a quarter of what the previous one did, no matter how much you raise prices.

Ok, but Mike, you’re talking about the premium subscription realm. What about all these free AVOD services? It’s true, the Plutos and Tubis of the world are growing, and they are practically inventory-creating machines, since they have live linear networks that apparently people are watching. Some people are even throwing on live linear networks programmed by their TV manufacturers apparently (such as Crackle Classics on Vizio).

Now, I don’t know any of these people, but as we’ve discussed, I’m a coastal elitist jerk. The problem is, nobody in our industry seems to have good data on how big their audiences are, who their viewers are, how often they watch, etc.

Nielsen may have given us an interesting clue in a study the other day that didn’t seem to garner much attention (we can still trust Nielsen -right?). The researcher took a look at households that have antennas – a group that has grown in recent years. These folks watch lots more linear TV than the average viewer (close to two hours a day), since broadcast networks are what you get when using an antenna.  But, according to Nielsen, they also watch more streaming content than audiences in homes with cable or satellite programming.

Here’s maybe the catch. Nielsen says that 50% of these antenna-using watch free ad supported TV, versus 25% of the rest of the market.

OTA-only homes is 61, compared with 45 for those with SVOD and 49 for those with SVOD and vMVPD.

Now we are not talking about a completely representative slice of the market here, but directionally this is super intriguing. Are the people that cut the cord for antennas simply younger folks who’ve never graduated to pay TV? (actually, they’re older, per Nielsen). Do they live in places where its hard to get cable? Or are they – whispers – lower income folks? Well, Nielsen found that “just under 70% of [this] audience says they spend less than $100 each month for their TV programming.”

So does that mean that the audience for free ad-supported CTV services skews heavily toward lower income demos?

Hey, there’s nothing wrong with lower income consumers (just ask Trump) – but they are not the kind of folks that brands like Peloton or Burberry or Mercedes want to reach on TV.  Even as advertising is becoming more ubiquitous, upscale households can still do more to avoid it than much of the country.

Where that leaves us is that TV as an ad medium likely won’t be able to do what it’s always been built to do – reach everybody in big bursts -even with the massive growth of CTV. That is, unless Netflix can change things.

For starters, Netflix is big – as in roughly 80 million US homes. And people who have Netflix watch lots of Netflix. So if the company can convert a significant chunk of that subscriber base to ad supported, and ad a few more million new ad-supported subs, brands may be able to access a much larger, reliable audience with CTV - one that is closer to classic TV. However, according to Insider , Netflix is talking about taking an uber-restrained approach to ads, as in no interruptive ads, only ads between shows.

That may be the right thing to do from a user experience perspective, but that’s hardly and ad inventory game changer.

Again, the math keeps getting harder for brands and media companies. For classic TV advertisers, they may have to settle for less, or start seriously rethinking what counts as TV (e.g. YouTube, Twitch, TikTok) and what doesn’t.