Netflix co-CEO Ted Sarandos confirmed Thursday at Cannes Lions 2022 that the streaming giant is speaking with multiple potential partners to help bring ads to its platform. The confirmation comes after the streaming giant announced in April it plans to offer a cheaper, ad-supported tier, after reporting a loss of 200,000 subscribers in the first quarter, leading to its stock suffering its biggest one-day drop in company history. Netflix also announced this week it is laying off about 300 staffers. Seth Schachner, managing director of Strat Americas, joins Cheddar News' Closing Bell to discuss.

Between Bells

Netflix Confirms Partnership Talks for Ad-Supported Service, With Google, NBCUniversal, Roku as Top Contenders

netflix reportedly met with google. Nbcuniversal and roco to discuss potential ad partnerships. Which company do you think would be the best choice? Great to be here, ken? Look, this is a new step for netflix. So, you know, I think as they're looking at this carefully, you know, probably what they should we partner or should we build this? I think they're gonna check out a couple of different partners and you know, I think Nbcu Comcast is probably A Good 1 to Start With. Um, but I also think there's different tiers and types of advertising, their private marketplaces and programmatic marketplaces. And I think both the trading desk and mag night have been kind of been mentioned on that as well. I don't know if I have any specific preferences amongst those two, but I think, um, you know, just given that this is a new extension for them, definitely a response to what you just mentioned, um, they'll probably pick a couple and it probably to me would be Nbcu Comcast because of that incredibly strong sales force they have as a broadcaster, you know, and as an advertising immediate business. And perhaps one of these programmatic marketplaces like a magnet as well. Well, the Wall Street Journal reports that a partnership with Nbcuniversal would likely be exclusive and that the ad team for Nbcuniversal, which is obviously, you know, one by Comcast would help netflix sell ads in the U. S. And in europe since Comcast and Nbcuniversal are familiar with traditional tv ads, why do you think they are the best choice if netflix were to choose? I mean, look, you know that google has been in the mix as well and there's, by the way, there's you know, a ton of important reasoning behind sort of first party data and opening data up basically. Um so you know, I don't know if I go off and just simply say, I think one of these is necessarily the best. I do think that Comcast is actually a little bit limited from a global perspective. So, you know, we we talked about this on prior times, I've spoken to you just what a global entity, you know, netflix is and so I think google certainly is global and some of these others were talking about our global, but you know, I I like like you, I come from the media business and I think there's a lot to broadcasters and relationships with agencies and brands directly. And um I would think if you're in the shoes of Hastings or Sarah does looking at this, those relationships are new and important and I can't see why you'd object to someone like NBC Comcast coming and doing it because they can probably help you with that now. I think I know the answer this question I wanna ask you anyway, do you expect content producers to get a cut of the revenue that netflix generates by selling ads against their movies and tv shows then I would hope so. I mean, I think I think these models are all new for for netflix, particularly this, this um, ad supported tier, which is gonna be different. I mean there's a ton of questions to be just about the viability of it by the way. Um but yeah, I mean at least in my experience if if you're, you know, in the middle of a licensing transaction between you know, content and distributor, um you always want to look at what's in the pie and you know, divide that pie up, whether it's actually pro rata or on some other basis. I think um from a content production perspective, there have been this, we buy it and that sort of kind of approaches without the back end. I think that's been um pretty widely reported and I think figuring out a way to compensate talent producers is going to be incredibly critical. So yeah, probably they're gonna need to be compensated and whatever goes into that pie for sure. And the reason I ask is that pie seems it could get pretty big cause some analysts believe that ads can bring in more than one billion bucks of revenue to netflix each year. So let's talk, how much does this help slumping netflix? I am going to be a conservative on this one because I think again, this is a new business for a subscription only entity, The king, a very successful one. They've lost some subscribers. But I if it was my betting I would bet the actual inventory is not going to roll out immediately, you know, they're going to do it in a staggered way and you know, um you have to think about targeting and data and what netflix would actually open up to their advertisers and I also would be a little bit conservative on that. Maybe they'll need to be some type of intermediary to match it and you know, get those ad rates up. So um you know, I would be cautious on it. I've I've watched, you know, I come from music and I've watched entities like Spotify kind of struggle with this stuff. So I think I think you need to have a couple of engines that the subscription model and the ad supported model and I would also just say, you know, more broadly, netflix has got things like password sharing and and games and a ton of other things. I think they're gonna need to do to kind of focus their business um and improve it. Content spending is for sure. Still the biggest issue I think, I think advertising will help it, but I'm not of the view, it'll be a total game changer right away. So I'm kind of conservative on that one. Alright, so Netflix as you know, also need subscribers and earlier this month, analysts at Wells Fargo predicted that a cheaper ad supported Netflix offering would attract just over 100 million subscribers by the end of 20, What are your thoughts on this? And how many of those users would be existing subscribers looking for? A cheaper option opposed to new subs. Look, I think that's I understand and kind of, I can see how they would come up with that estimate. I think the free ad supported users might be very different qualitatively, um, than the subscribers. I do think that um, you know, from the netflix model perspective, you just think about binging and watching and you know, streaming stranger things at Infinitum advertising might be a disruptive thing to the average user experiments. I have to imagine they're looking at that, you know, quite seriously. It would be my bet that if you're looking to either retain or add like younger subscribers, they may be more tolerant of advertising breaks basically. And I think I think that's probably what they're thinking about to retain folks from going to some of the other services that are out there at the same time, pretty much all their competitors are going to have, you know, not identical, but ad supported offering. So, um, I can see where the estimates coming from. I just think qualitatively you might be looking at different types of subscribers that or users than than full on premium subscribers Now. Netflix has not been big with sharing its users data, but advertisers will most likely want to have access to that data, especially when it comes to viewer behavior to ads. So how do you think netflix deals with this? I think that's a really serious question. And again, cautiously like I I don't know if they would just open everything up in their ecosystem to to whether it's a private marketplace or an NBC Comcast right away. Basically. I think there may be kind of a one way, you know, flow if you will. And I also think the inventory itself might be limited to start. You might not see homepage, but you might see other forms of advertising. So I think that's a that's a real question there. And I would bet you won't see kind of the full on integration. Um, in terms of data that an advertiser would see. I think that's one of the reasons why you're probably gonna see a mix of partners when they go out to do this basically they need to figure out this business 1st. I mean I will, I'll point you to hulu who did something along these lines three or four years ago with a company called helium I believe. And I don't know if he really made anything in terms of the margins on the actual ad inventory until you kind of figured out the business. So, so probably yes. But again, it's gonna be a staggered kind of road until you get to that full open door would be my bet. All right, well thank you for sharing your password with me over all these years. I appreciate it. Seth and thank you also for coming on the show, said Jack, managing director of strata America Seth. Always good to see you have a great weekend.