Netflix Locked Out Advertisers for Years, but Now Brands Have Big Plans

Advertisers and Wall Street are expecting to get an update on plans for the ad-supported service when the company reports earnings on Tuesday. Netflix is coming off a quarter in which it recorded its first subscriber decline in more than a decade. Offering a less expensive, ad-supported option is expected to help boost subscriber growth.

For years, advertisers were locked out of most of the biggest streaming services, where consumers were increasingly migrating as interest in traditional TV eroded. That is beginning to change:

Warner Bros. Discovery Inc.’s

HBO Max is now offering a plan with commercials and

Walt Disney Co.

’s Disney+ is moving to do the same.

With nearly 222 million subscribers globally, Netflix is the biggest prize for advertisers, though it remains to be seen how many people will opt for the lower priced ad-supported tier once it becomes available. The company is also seeking to amend its programming deals with major entertainment studios to allow it to run content on the ad-supported tier, The Wall Street Journal reported last week.

“It’s a place we couldn’t be before,” said

Angela Zepeda,

chief marketing officer of Hyundai Motor America. “And we want to be there.”

Netflix last week said

Microsoft Corp.

would supply technology to facilitate the placement of video ads, but many advertisers are eager to see the degree of granularity with which they might be able to target specific viewers.

“They give me exactly what I want when I don’t know what I want to watch,” said

Shiv Singh,

chief marketing officer of online-lending platform

LendingTree Inc.,

of Netflix’s show-recommendation engine. He said he sees big potential if the streaming service is able to do the same with ads.

“One of the things Netflix does really well is personalizing,” said

Dara Treseder,

Peloton’s chief marketing officer.

Several advertisers have expressed interest in locking in multimillion-dollar long-term deals with Netflix, according to a major ad buyer—a practice championed by Quibi, Hollywood mogul

Jeffrey Katzenberg’s

now-defunct streaming service, which had signed ad deals valued at $150 million with blue-chip marketers in the run-up to its 2020 launch.

Marcel Marcondes,

Anheuser-Busch InBev SA’s

global chief marketing officer, said he wants Netflix to reinvent advertising and do something that doesn’t feel like typical commercials.

During the Cannes Lions conference last month, Co-Chief Executive

Ted Sarandos

said Netflix planned to insert ads in a way that would be “more integrated and less interruptive” than traditional TV advertising.

“If they go straight to the traditional model, it’s going to be the biggest failure ever,” Mr. Marcondes said.

Peloton’s Ms. Treseder said she wants Netflix to partner directly with brands in a bigger way on deals that can include featuring specific items in its shows—on top of letting marketers run ads for their products. “That is what is going to make marketers contribute a significant portion of their budget, because you are going to get much deeper [return on investment] and cultural relevance,” she said.

Hyundai’s Ms. Zepeda said the car maker works closely with media companies such as Disney to develop ad partnerships that go far beyond just buying ad time and space across various networks and websites. She said she often looks for deals that include the ability to work with actors and or showrunners to create ads that tie into specific programs or arrange to have the company’s vehicles appear or mentioned during shows.

Earlier this year, the company had the Ioniq 5, an electric sport-utility vehicle, integrated into “Black-ish,” a show that ran on Disney’s ABC broadcast network. During the episode, Anthony Anderson, who plays an advertising executive on the show, worked on a faux Super Bowl commercial about the SUV.

Ad executives say that advertising is even more effective when viewers see a product within a show and then see a commercial for that very product shortly afterward. Studies have shown that when a product plug aired in the same program as standard commercials for the same brand, the ability for a consumer to remember the brand increased significantly.

Even though Netflix has been ad-free since its inception, some brands have had their products or names incorporated into popular Netflix programs, though the company generally doesn’t do paid product placement, a person familiar with the practice said.

In 2019,

Coca-Cola Co.

did a cross-promotion with “Stranger Things” that included having New Coke, one of the beverage giant’s biggest failures, appear in several episodes of the popular show, which, like the New Coke launch, takes place in the 1980s. As part of that effort, cans of regular Coke and Coke Zero Sugar carried the “Stranger Things” logo. Coke paid a licensing fee to sell the cans and bottles that carried the show’s logo but didn’t pay to have New Coke appear in the show.

While product placement has been a part of the TV business since the early days of the medium, the practice exploded years ago as marketers saw it as a way to sidestep commercial-skipping devices.

Amazon.com Inc.

announced a beta program for a new ad format earlier this year that uses technology to virtually insert brands or products into TV shows or movie scenes after they have been filmed or produced.

Comcast Corp.’s

NBCUniversal also said recently that it would begin to offer advertisers a similar ad product for its streaming service Peacock.

Write to Suzanne Vranica at [email protected] and Sarah Krouse at [email protected]

Advertisers and Wall Street are expecting to get an update on plans for the ad-supported service when the company reports earnings on Tuesday. Netflix is coming off a quarter in which it recorded its first subscriber decline in more than a decade. Offering a less expensive, ad-supported option is expected to help boost subscriber growth.

For years, advertisers were locked out of most of the biggest streaming services, where consumers were increasingly migrating as interest in traditional TV eroded. That is beginning to change:

Warner Bros. Discovery Inc.’s

HBO Max is now offering a plan with commercials and

Walt Disney Co.

’s Disney+ is moving to do the same.

With nearly 222 million subscribers globally, Netflix is the biggest prize for advertisers, though it remains to be seen how many people will opt for the lower priced ad-supported tier once it becomes available. The company is also seeking to amend its programming deals with major entertainment studios to allow it to run content on the ad-supported tier, The Wall Street Journal reported last week.

“It’s a place we couldn’t be before,” said

Angela Zepeda,

chief marketing officer of Hyundai Motor America. “And we want to be there.”

Netflix last week said

Microsoft Corp.

would supply technology to facilitate the placement of video ads, but many advertisers are eager to see the degree of granularity with which they might be able to target specific viewers.

“They give me exactly what I want when I don’t know what I want to watch,” said

Shiv Singh,

chief marketing officer of online-lending platform

LendingTree Inc.,

of Netflix’s show-recommendation engine. He said he sees big potential if the streaming service is able to do the same with ads.

“One of the things Netflix does really well is personalizing,” said

Dara Treseder,

Peloton’s chief marketing officer.

Several advertisers have expressed interest in locking in multimillion-dollar long-term deals with Netflix, according to a major ad buyer—a practice championed by Quibi, Hollywood mogul

Jeffrey Katzenberg’s

now-defunct streaming service, which had signed ad deals valued at $150 million with blue-chip marketers in the run-up to its 2020 launch.

Marcel Marcondes,

Anheuser-Busch InBev SA’s

global chief marketing officer, said he wants Netflix to reinvent advertising and do something that doesn’t feel like typical commercials.

During the Cannes Lions conference last month, Co-Chief Executive

Ted Sarandos

said Netflix planned to insert ads in a way that would be “more integrated and less interruptive” than traditional TV advertising.

“If they go straight to the traditional model, it’s going to be the biggest failure ever,” Mr. Marcondes said.

Peloton’s Ms. Treseder said she wants Netflix to partner directly with brands in a bigger way on deals that can include featuring specific items in its shows—on top of letting marketers run ads for their products. “That is what is going to make marketers contribute a significant portion of their budget, because you are going to get much deeper [return on investment] and cultural relevance,” she said.

Hyundai’s Ms. Zepeda said the car maker works closely with media companies such as Disney to develop ad partnerships that go far beyond just buying ad time and space across various networks and websites. She said she often looks for deals that include the ability to work with actors and or showrunners to create ads that tie into specific programs or arrange to have the company’s vehicles appear or mentioned during shows.

Earlier this year, the company had the Ioniq 5, an electric sport-utility vehicle, integrated into “Black-ish,” a show that ran on Disney’s ABC broadcast network. During the episode, Anthony Anderson, who plays an advertising executive on the show, worked on a faux Super Bowl commercial about the SUV.

Ad executives say that advertising is even more effective when viewers see a product within a show and then see a commercial for that very product shortly afterward. Studies have shown that when a product plug aired in the same program as standard commercials for the same brand, the ability for a consumer to remember the brand increased significantly.

Even though Netflix has been ad-free since its inception, some brands have had their products or names incorporated into popular Netflix programs, though the company generally doesn’t do paid product placement, a person familiar with the practice said.

In 2019,

Coca-Cola Co.

did a cross-promotion with “Stranger Things” that included having New Coke, one of the beverage giant’s biggest failures, appear in several episodes of the popular show, which, like the New Coke launch, takes place in the 1980s. As part of that effort, cans of regular Coke and Coke Zero Sugar carried the “Stranger Things” logo. Coke paid a licensing fee to sell the cans and bottles that carried the show’s logo but didn’t pay to have New Coke appear in the show.

While product placement has been a part of the TV business since the early days of the medium, the practice exploded years ago as marketers saw it as a way to sidestep commercial-skipping devices.

Amazon.com Inc.

announced a beta program for a new ad format earlier this year that uses technology to virtually insert brands or products into TV shows or movie scenes after they have been filmed or produced.

Comcast Corp.’s

NBCUniversal also said recently that it would begin to offer advertisers a similar ad product for its streaming service Peacock.

Write to Suzanne Vranica at [email protected] and Sarah Krouse at [email protected]