Netflix’s declaration that after years of remaining steadfastly ad free it will look to create a lower-priced ad supported tier, is an affirmation for the advertising technology sector, according to analyst Matthew Swanson of RBC Capital Markets.
“One of the largest and most successful subscription streaming services seeing the need and benefit of advertising is major vindication for the long-term CTV advertising market,” Swanson said in a note Tuesday. “We view this as a modest positive for the ad-tech companies in our coverage, DoubleVerify, Magnite, PubMatic, Tremr and The Trade Desk.”
Analyst Daniel Salmon of BMO Capital Market similarly saw opportunity in the Netflix announcement. His thoughts one which ad tech companies would benefit are below.
Netflix would be following in the footsteps of Disney, which recently said it will launch and ad-supported version of Disney Plus. HBO Max, Paramount Plus and Discovery Plus all have lower priced ad-supported tiers.
Swanson noted that during the company’s earnings call with analysts, Netflix CEO Reed Hastings indicated that rather than build a big ad tech stack, it would hire other companies to do the heavy lifting. “We can be a straight publisher and have other people do all of the fancy ad matching and integrate all the data about people,” Hastings said.
It remains unclear how big an opportunity Netflix’s entry into the ad market would create for the ad tech sector, Swanson said. “Even Netflix doesn't know how many of its 221.6 million subscribers would make the switch or how many new customers it could add to the platform,” he noted.
But with Netflix looking to outsource its ad tech, the industry can be less concerned about media companies moving those capabilities in-house, he noted.
At the same time, “if one of the largest and most successful subscription streaming services in the world is seeing the need and benefit of advertising, this is major vindication for the long-term health of the CTV advertising market and supports our feeling that as the number of streaming services expands, there is going to be a natural evolution toward AVOD (ad-supported video on demand) or ad-supported models as consumers reach thresholds on subscription spending,” Swanson added.
“Overall, we view this as a modest positive for the ad-tech names in our coverage, with the potential for clearer beneficiaries to emerge as we get more details,” he said.
Salmon of BMO had his own thoughts on the situation.
“Netflix is unlikely to reinvent the wheel, and investors should expect an initial focus on branding versus direct response, with engagement into established private marketplace programmatic pipes,” Salmon said in a report.
Salmon said that if Netflix has a branding focus, that makes The Trade Desk odds on favorite to be first demand partner. Its; legacy relationship with Roku makes it a likely partner candidate too, he added.
“Magnite is viewed as leading CTV SSP and would have strong pitch for that role,” he added. While “Innovid benefits from more ad serving volume.”
Salmon noted that “while co-CEO Hastings implied wholly outsourcing targeting/measurement to others, over the long term, we'd expect a more typical balance of third party partners, combined with investment in proprietary ad tech (in part to ensure gold standard privacy compliance) and to best leverage Netflix’s own first party customer data and strong engineering culture."■
