Not Showing at Netflix: The Great Online Ad Slowdown
by Peter Kafka
Posted on January 27, 2009 at 3:52 AM PT
The online ad slowdown that everyone has seen and heard about? It has yet to benefit Netflix, one of the world’s biggest buyers of online advertising.
That odd bit of cognitive dissonance surfaced yesterday, when the DVD rental company said it hadn’t been able to buy Web ads at a discount at the end of 2008. Hard to tell if it’s meaningful–does this mean the slowdown hasn’t been as great as people think, or is it just a statistical anomaly?–but it is interesting.
The details: During the company’s Q4 earnings call, CEO Reed Hastings told analysts that Netflix “didn’t see any benefits” from lower online ad pricing during the last three months of last year.
That’s odd, since Netflix (NFLX) buys more online ad inventory than just about everyone. Last year, when Nielsen Online was providing monthly reports about top advertisers on the Web, Netflix routinely made the Top 10 list, along with a handful or mortgage and finance companies. (Surely you’ve been annoyed by the company’s omnipresent pop-under ads). So if anything, its leverage should have increased in the past few months.
That prompted a follow-up question along those lines. Transcript via Seeking Alpha:
Youssef Squali–Jefferies & Co.
Barry, just a quick clarification, I think you said in your answer to a question that was posed before that you have not seen any benefit from lower ad rates in Q4. I’m just trying to reconcile that. Everything that we’re hearing from ad players out there, online ad players that at least on the CPM side and particularly on non-premium inventory where you guys seem to spend a lot of money, we’ve seen double digit declines year-on-year. Given the fact that you’re one of the top 20 online advertisers out there how can you not see a benefit?
Netflix CFO Barry McCarthy
You know, I put the question to our chief marketing officer in almost exactly the same tone and he reminded me that we already buy at low rates in mostly the remnant market so what must be happening is that the trickle down affect hasn’t yet hit the remnants space which is already incredibly discounted.”
It’d be great to think that remnant space–the cheap inventory Web sites usually hand over to ad networks or Google (GOOG) when they can’t sell it on their own–hasn’t come down significantly, but that’s not what I hear anecdotally, and that’s not what a barrage of reports has indicated.
The graph below, for instance, comes from ad optimization company PubMatic, which just reported “dramatic” drops in pricing over the last year. We’re likely to hear more of the same from Yahoo (YHOO) today. Anyone want to explain why Netflix hasn’t seen a benefit from those fire sales?
Comments
Mr. Hastings, if there was ever a time to call in your Internal Audit team, this is it. Your marketing guru may be correct; maybe not. The ad market could be exactly as described; or your marketing chief may be passing along bad intel. If in doubt, you should ask your chief auditor to confirm the Marketing chief’s assertions. Otherwise, you’re really not going to know the answer.
Posted by Aaron Thomas at January 27th, 2009 at 5:18 ama few possible explainations:
- the average eCPM declines are being skewed by relatively larger declines in premium areas like finance which are not
where NFLX advertises, so its not expected that they’d see the full ‘average decline’ benefit. They tend to advertise in very general, mass reach content which is already very cheap to start with. The eCPM drop in these content areas is probably not nearly as severe since they were so low to begin with.
- To take it a step further NFLX may buy what I think of as sub remenant. Sub Remenant is “ad inventory” that is not a part of the traditional publishers ad spaces inventory. Ie pop unders and the “hey can you add a 90×60 button on this little corner on every page of your site for the next six month” for a next to nothing CPM but at massive volumes of impressions. Because this doesn’t eat into other sellable inventory and NFLX can dangle a big check in front of publishers, they’ll often get deals outside what you normally see in the ad network remenant circles.
- becuase of their size and buying power they may work more significantly with publishers directly on more long term deals, like the one described above, where the effect of month over month ’scatter pricing’ variability is more muted. But rest assured when its time to renew, they should have a lower jumping off point from which to renegotiate those new deals.
@ $26 SAC, $14-15 of monthly ARPU, and less than 5% churn they don’t seem to be doing too shabby.
Posted by ben allen at January 27th, 2009 at 11:29 amHelpful, Ben. Thanks.
Posted by Peter Kafka at January 27th, 2009 at 2:23 pm