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Netflix Ignites New Growth Engine Through Advertising and Platform Strategies

1. Netflix's Introduction of Advertising Strategy and Its Background

• In the early streaming market, Netflix established itself as a replacement for cable TV, leading the 'cord-cutting' trend.
• However, as competition in the OTT market intensified, with the emergence of other players like Disney, Amazon, and Hulu, Netflix faced pressure for growth.
• In this process, the launch of an advertising-supported plan introduced a new revenue model, marking a full-scale transition to an ad-based streaming business.

2. Possibilities of Advertising Plans and the Connected TV Market

Success of the Advertising Plan and Meeting Needs

• Netflix offered existing users a lower-priced plan in exchange for viewing ads.
• This strategy successfully attracted customers who had canceled or hesitated to use the service due to price concerns.
• Unlike YouTube's ad-skipping model, the new approach of "reducing fees for watching ads" was well-received, resulting in low consumer resistance.

Opportunities in the Connected TV Advertising Market

• Unlike traditional TV advertising, ad space (inventory) on OTT platforms allows for precise targeting.
• Netflix's ad cost (CPM) is expected to deliver a high ROI, being 2-3 times higher than traditional TV advertising.
• As of 2023, the connected TV market is considered to be in its early stages of growth, with significant potential to replace the existing share of traditional TV.

3. Changes in Netflix's Content Investment Flow

Reduction in Content Investment

• Initially, Netflix invested heavily in producing original content, a strategy that proved effective in the long term. However, recently, the intensity of this investment has decreased.
• After 2022, the growth rate of original content assets has stopped, with a reduction in the proportion of cost of revenue and marketing expenses, enhancing profitability.

Transition to a Platform Company

• Netflix is focusing on nurturing an ad-based revenue model as a platform, trying to reduce its dependence on original content production.

4. The Present and Future of Platform Building and Advertising Expansion

Innovation of Netflix's Advertising Platform

• Ending its collaboration with existing partner Microsoft-Xandr and establishing new partnerships with advertising technology specialists.
• Plans to greatly enhance the efficiency of its advertising platform through collaboration with Google, The Trade Desk, and Magna.
• As of the end of 2023, advertising platform testing has begun in Canada and the United States, with early success cases suggesting rapid expansion.

Growth Potential and Strategic Goals

• Ad-based revenue is expected to double in 2024, aiming for explosive revenue growth in the long term by running parallel to subscription models.
• By leveraging ad viewing data, Netflix can potentially expand into new business areas such as e-commerce and AI-based ad optimization.

5. Key Elements of Netflix's Future Strategy Signals

• Convergence of Technology and Content: Netflix is strengthening its market position as a technology-based ad platform to improve ad effectiveness.
• Global Expansion: Pursuing long-term growth in the global market through an ad-content fusion model, transcending language and cultural barriers.
• A Starting Point for a New Leap: Transitioning from a focus on streaming to a focus on advertising, attempting a next leap as a platform company.

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< Summary >

• Netflix is nurturing a new revenue model through ad-supported plans, transforming into a leading business in the OTT ad market.
• The establishment of an ad-based platform is progressing towards maximizing OTT ad price increases and the precision of targeted advertising.
• The focus of the business is shifting from content creation to improving advertising effectiveness, which is a strategy to secure sustainable profitability.

[More…]

• [Analysis of Netflix's Advertising Plan Success Strategies]
  (https://Next-Korea.com?s=Netflix)
• [The Rise of the OTT Market and Connected TV Advertising]
  (https://Next-Korea.com?s=Advertising)

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