A penchant for excellent restaurants and watching Gordon Ramsay eviscerate restaurant owners has given me the entirely unproven and unjustified feeling that I would make a perfect restaurant critic.
As an amateur critic (well, more accurately, from what I have seen on Kitchen Nightmares), some of the biggest problems come when the chefs and owners stop eating the product.
The quality slips, the sous chef starts adding layers of their recipe interpretation, the original menu is discarded, and the food quality death spiral begins.
Jumping over to the point, Netflix chose Microsoft as their partner to launch their ad-supported product version, to be launched in 2023. Greg Peters, Netflix COO, said that the offering would provide "more choice for consumers and a premium, better-than-linear TV brand experience for advertisers".
Well done, Xandr and Microsoft! By all accounts, it was a real surprise that Google didn't get the nod.
I won't reminisce around Microsoft Advertising's myriad lifespans (MSN, adCenter, aQuantive, AdECN, Atlas, Microsoft Ad Exchange, DrivePM, Bing, LinkedIn) and those are just the direct ones.
But somehow, what was once the biggest (and arguably, most anti-competitive) company in the world, and one of the most dominant players in online advertising, is now classified as 'the little engine that can' and a plucky underdog - so well done them!
I understand that this product evolution needs to happen for Netflix to compete with other lower-cost and ad-supported players. So my questions are twofold:
- How will it work in APAC?
- What about the experience for consumers?
When the deal was announced, I questioned the geographic coverage of Xandr. Their presence in APAC is not stellar. Just over 100 staff in the region's main markets.
Microsoft advertising (outside LinkedIn) and Netflix don't fare much better regarding sales staff numbers. I don't see how you achieve Netflix's lofty ambitions of serving quality advertising to consumers and upholding the halo they have around their brand whilst supported by these numbers.
How ad density relates to quality
My time running the commercial side of Outbrain APAC exposed me to the global commercial team. I was fortunate enough to work with those colleagues on multiple initiatives. This was my singular work experience with a unicorn and was fascinating.
One of the things that struck me was the difference in dealing with buyers in different markets was COMPLETELY different. We're not talking about engagement levels of 60% in one market and 75% in another. We're talking about "oh, we've been told we're not allowed in the building" through to "we have tier one partnership, we're at the top of the list, and they engage with us direct, programmatically, through content, native etc. etc.". It was a mind-blowing difference.
After digging-in, we saw one of the significant determining factors of our agency relationships was the competition (depth in number) of quality advertisers in the marketplace.
Simply put, a low density of high-quality advertisers equals a lot of lower-quality clients and publisher click-seeking articles: 'You won't believe what they look like now'; "Taxi driver making $200k'; 'Diet pills'; 'Trump'.
But a higher density of top-tier advertisers meant more brand and agency clients, meaning that when buyers and clients see the Outbrain widget at the bottom of most news pages, they are faced with: "Test drive this new car from GM"; "Try these new Adobe Cloud features' and 'Understand how the cloud impacts your business'.
Agency execs in some markets viewed us as a powerful tool to augment their social strategy and campaign reach through native. However, others questioned our suitability for the plan—all a factor of the ad density in the buyer's location.
The last part also underlines the significant difference between the potential of programmatic advertising/demand and reality. In APAC (and other emerging markets), the waterfall is not as tall or deep as in mature markets.
Getting back to Netflix
Anyone who has watched anything ad-supported in Asia has sat through (maybe) the one or two high-quality ads that buy through the open marketplace before being subjected to ads made for mobile games to drive downloads.
Let's be clear. This is not a high-end consumer experience. This won't feel natural or sit well on Netflix, returning to Mr Peters's assertions. It will certainly not be a "better-than-linear TV brand experience for…" anyone.
I don't see where all this high-quality advertising demand is expected to come from. YouTube and Twitter, with their bumper, above-the-fold ad formats, probably have the most comparable products (big audiences, viewable, headline, above the fold and 'always there') – and from my agency days, I didn't see brands racing to pay the extra that these platforms thought those high impact/quality formats deserved. Outside of three of four leading brand players, demand was deficient.
Netflix seems to be going down the Field of Dreams school of hope-based business planning along the lines of 'build it and they will come'. But that hasn't worked out for other premium content formats in the region. iFlix, anyone?
So back to the question, how will this work? Will Netflix turn on a crappy experience in terms of ads? Will Holdco sweep up the inventory for their premium advertisers? And how long would that last at the price premium? Will they scrap ad-capping so we watch the same ads 15x because only five advertisers are willing to pay the rates? Will they turn on the open market so we can all install Clash of Clans on our Apple TV or Roku?
The answer to those questions will give us the answer to question two. What's in store for consumers? It's a delicate balance for Netflix. It's options are:
A. They show limited ads and only premium advertising
B. Repeat, repeat
C. Open up to the trash of the open CTV market
These choices will either impact the earnings of an ad-supported level of Netflix or take the shine off what has always been an incredible consumer experience and a market-leading app.
Back to restaurants, this is like McDonald's agreeing on an excellent menu but neglecting that most ingredients aren't available where half of their customers care.
Greg Peters and the Netflix executive team need to set the table and eat what they are serving. They need to set up some VPNs in Los Gatos and start streaming the ads that they are potentially about to expose the 40-50% of their paying subscribers to.
As many Microsoft alums will be aware, across the business, there has been a commonly used phrase, 'dogfooding', where it was asked: "Are we eating our dog food here?" It's only a slightly more vulgar version of Ramsay's equally direct: "Have you eaten this cr*p?!"
Fionn Hyndman is a partner at Asia Pacific Growth Management