Netflix is Ramping up its Ad Business ー But Not in the Way You Think

Netflix
March 21, 2019

By Michelle Castillo

Netflix is adding ads ー but not in the way most people would expect.

The company has been ramping up its efforts for “marketing partnerships” over the last year, which could include product integrations in its shows, several sources noted. While viewers will not see commercial breaks, what they may see are more Netflix-owned characters used in other companies' commercials or other brand promotions and more product placements during Netflix shows.

These type of Netflix deals can cost between $300,000 and $1 million dollars based on factors like how much of a marketing boost Netflix can get from having their characters featured by brands, according to sources.

Netflix is projected to spend up to $15 billion on content in 2019, according to a note from BMO Capital Markets. Creating ways to license out popular characters and place sponsored items in its own shows can be a valuable revenue stream, as more companies with big content budgets like Apple ($AAPL), Disney ($DIS), and WarnerMedia ($T) set to launch competitive services.

Netflix’s efforts are being led by Zac Eller, who came over from 20th Century Fox in 2018. At Fox, Eller served as an executive vice president overseeing marketing partnerships and branded entertainment. Netflix has been actively poaching employees from advertising agencies to focus on various verticals including film, unscripted, scripted, and family/young adult content, several people noted.

Netflix declined to comment.

Product placement is one of the oldest forms of television advertising. As questions over the brand safety and effectiveness of ads on digital platforms loom, buying a guaranteed placement inside “safe” content might be worth the premium. Netflix's brand placements have included Dunkin’ Donuts in “House of Cards” and KFC in “Stranger Things.” Lyft was featured in the latest season of “Orange is the New Black,” while the latest season of “Queer Eye” featured trips to West Elm stores. However, the company is taking special effort to make sure the products make sense with the storyline, a source noted.

Licensing characters also serves as advertising for Netflix content if done right. One of the most popular ads during the Super Bowl was Bud Light’s "Game of Thrones" commercial, which featured one of the dragons from the series. A source familiar with the matter said companies including Netflix are actively trying to work with agencies to increase these kinds of crossovers.