Dive Brief:

• Netflix’s ad-supported tier grew membership 34% quarter on quarter in Q2, according to an earnings statement. The company did not break out specific subscriber numbers for the offering, which had around 40 million global monthly active users as of May. 
• The streamer is pursuing big changes for its advertising unit, developing an in-house ad-tech platform that aims to be widely available by the end of 2025. Netflix is also pushing further into the programmatic arena through partnerships with The Trade Desk, Google Display & Video 360 and Magnite.
• As Netflix evolves its strategy, it is parting ways with Vice President of Ad Sales Peter Naylor, who joined the company as the ad-supported tier was just gearing up in 2022.   

Dive Insight:

Netflix executives have frequently described their vision for building an advertising juggernaut as a “crawl, walk, run” process. The streamer seems to be inching nearer to the “walk” portion of that road map, but not without undergoing some transitions.

Naylor is the second major ad executive to depart the business that is nearing two years in operation. Jeremi Gorman, who jumped to Netflix at the same time as Naylor from Snapchat to serve as global ad president, left in October. Gorman was replaced by Amy Reinhard, formerly vice president of Netflix’s studio operations. Netflix is seeking an executive to spearhead Netflix’s U.S. and Canada ad sales versus Naylor’s more global scope.  

“Peter’s enthusiasm, industry knowledge and relationships have been invaluable in getting our advertising business off the ground,” Reinhard said in a statement shared with Marketing Dive. “I want to thank him for all he has done to build our team, grow the business and position Netflix for success.”  

Netflix launched its ad business in 2022 with the aid of Microsoft’s ad-tech and sales know-how, but it’s begun focusing on an internally developed platform. The in-house ad tech is expected to be tested in Canada later this year before rolling out globally at some point in 2025. At the same time, Netflix is enacting several new programmatic partnerships, adding The Trade Desk, Google Display & Video 360 and Magnite to its roster. 

These moves, taken together, are meant to help Netflix achieve “critical ad subscriber scale” by 2025. While the segment is beginning to become a more meaningful contributor to revenue, it will not be a primary growth driver either this or next year, the company said in a shareholder letter. Ad relevance, personalization, measurement and incrementality are the biggest areas where Netflix is looking to improve in the near term. 

“The biggest negative feedback we get is that we aren’t there right now, so advertisers want us to have all those features in place today,” said Greg Peters, Netflix co-CEO, on a call discussing the Q2 earnings with investors. “So we’ve got the hard work ahead of us of building those as quickly as we possibly can and closing that gap as soon as we can.”

Netflix has stiffer competition in ad-supported streaming following Amazon’s introduction of commercials to Prime Video in January. Netflix has forged further into live programming like sports that tend to be magnets for brand dollars. The service will broadcast two NFL games on Christmas Day this year.   

User traction seems to be healthy as consumers contend with subscription fatigue and seek cheaper streaming options. Netflix’s ad-supported tier, which costs $6.99 per month in the U.S., now accounts for over 45% of sign-ups in all markets that carry the offering. Ad formats like pause ads that command the screen when viewers take a break have been tested by brands including Coca-Cola, Ford and McDonald’s.