LOS ANGELES, CALIFORNIA – JUNE 12: Netflix CEO Ted Sarandos attends the Netflix FYSEE event for “Squid Game” at Raleigh Studios Hollywood on June 12, 2022 in Los Angeles, California. (Photo by Charley Gallay / Getty Images for Netflix)
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CANNES, France – When the world’s largest advertising conference kicks off this week, all eyes will be on Netflix to find clues as to how the playback giant plans to break its ad-free business model to offer a subscription cheaper for the first time.
Netflix co-CEO Ted Sarandos plans to end a week of panels with a talk on Thursday at the Cannes Lions festival, which returns after a two-year hiatus during the pandemic and has named Sarandos as “Person of entertainment of the year “. “The panel comes amid expectations that demand will grow for cheaper, ad – compatible streaming subscriptions, as inflation is pushing people to cut costs.
Attendees will also be looking for clues as to who Netflix will partner with for its foray into the advertising world, which is expected to increase rapidly to begin selling ads as early as the fourth quarter. Sources told CNBC that Netflix has teamed up with Google, which earns most of its ad revenue. He has also met with Comcast / NBCUniversal and Roku to discuss ad sales partnerships, as reported by The Information. NBC Universal and Google declined to comment.
“We’re still in the early days of deciding how to launch a lower-priced, ad-supported option and no decisions have been made. So all this is just speculation right now,” Netflix said in a statement.
The company is looking to secure a marketing partner in the next two to three months and quickly hire a senior executive and put together a team to manage the relationship with its partners, according to a source who requested anonymity.
Getting ad money to flow in real-time entertainment is the main mind for many festival-goers. In April, Netflix said it would offer a cheaper option with ad support after it reported the loss of subscribers for the first time with intensified competition in the broadcast space. Sarandos’ talk in Cannes was scheduled before Netflix announced its next move.
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Disney + is also preparing to launch an advertising service later this year. Paramount + is ad-supported and Pluto-free with ad support. The newly merged Discovery Warner Brothers with a combination of its expected streaming services, and Roku, with its growing advertising business. CNBC’s parent company, NBC Universal, also offers a subscription with cheaper advertising for its Peacock service.
The company will have to weigh the pros and cons of each of the potential partners. Google, for example, has the advantage of being the largest advertising giant in the world, but has less experience with entertainment content despite its recent push into space.
Comcast is not as global as Google, but its NBC Universal unit is a leader in ad sales for this premium TV content. The cable giant’s Freewheel advertising technology platform is also used by many media companies and could offer Netflix its ad-buying programmatic tools. In addition, NBC Universal has just expanded its partnership with Apple to sell its ads, setting a precedent for its partnership to sell premium content ads at scale.
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Another option is Roku, a Netflix partner that previously split from the streaming giant. As the largest television operating system in the U.S., Roku has the advantage of its scale in the U.S., Canada, and Mexico and its vision of ad-supported subscription trends.
Possible partnerships would continue a long history of rivals joining the media industry. As a content distributor and entertainment company, for example, Comcast regularly makes distribution agreements with rivals on its NBC Universal. And Roku is partnering with streaming apps on TKKT while offering its own free ad-supported alternative to the Roku channel.
The stakes are high for Netflix. Its shares have dropped nearly 50% since it warned of its contracting subscriber base. Offering a cheaper advertising service is a way to prevent cancellations from continuing while people are looking to cut costs, but Netflix needs to make sure that the advertising experience doesn’t turn off viewers.
Disclosure: CNBC is owned by NBCUniversal from Comcast.