Riddle me this, Netflix: Why partner with BARB if not for ads?

Person watching Netflix on TV with no ads

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Netflix claims it doesn’t intend to ever run ads on its platform. So riddle me this, Batman, why has the business which is notoriously secretive about viewership partnered with the UK’s TV audience measurement company? Are they opening the door to an ad-funded model as competition and debt increasingly put pressure on the bottom line?

Key points:

Reed Hastings, co-founder, chairman and chief executive of Netflix, surprised everyone last month saying he welcomes BARB measurement of Netflix content.

Barb is responsible for delivering the UK’s television audience measurement currency. The organisation collects data representing the viewing behaviour of the UK’s 27 million TV households, a similar remit to OzTAM in Australia.

Netflix has changed the landscape irrevocably in Australia and globally stimulating mergers, acquisitions, realignments and more copycats than a cat from Ballarat.

Netflix is notoriously secretive about audience and ratings information not even sharing this information with the creators of shows on its platform.

Netflix is generating positive EBITDA but at the same time negative cash flow from operations. Content is bloody expensive, more competitors are coming and Netflix currently has more than $8 billion (USD) in debt.
Netflix has more than 130 million paid subscribers globally and brings in approximately 66,000 new subscribers a day. According to Roy Morgan research, Netflix has access to 11.2 million Australians.

My Takeout

Netflix insists it will continue to eschew ads for subscription dollars. But the competitive landscape is changing fast.

Subscription Video on Demand (SVOD) which includes Netflix, Stan, Amazon, 10 All Access – as well as the pending arrival of Disney+ and others – has had a huge impact on advertiser’s ability to reach high volumes of consumers with video messages. At the same time, the SVOD market is becoming increasingly competitive which means the cost of content is going through the roof.

As the largest player, Netflix has continued with a business model that many have criticised as unsustainable even though the business is growing at a rapid rate. Through the vagaries of accounting, they are somehow generating a positive EBITDA and at the same time as negative cash flow from operations.

There are many ways to grow revenue but the obvious option is to introduce an ad-funded model, grow audience and generate additional revenue from advertisers. So is this the beginning of another quality player in the addressable TV market?

By partnering with BARB, the UK’s TV audience measurement provider, it certainly suggests this is a possibility.

The implications are clear for the Australian market – an ad-funded Netflix would be bloody great for advertisers. Imagine the targeting possibilities off the back of Netflix’s rich data sets?

The news is less encouraging for local broadcasters.

Perhaps this will put a rocket up OzTAM and its pending launch of Virtual Australia or VOZ, the combined measurement database that brings together linear TV and Broadcaster Video on Demand (BVOD). We’re told this will help agencies to better plan and buy media at scale.

The broadcasters would do well to get this in-market quick smart before the possibility of ad-funded Netflix comes knocking on our door and tries to take a slice of the video advertising pie.

Ben Willee

Over a 20-year career Ben has worked in some of the biggest media agencies in the UK and Australia. As General Manager and Media Director, Ben optimises our fully integrated, no silo approach.