Netflix is courting brands to join its upcoming ad-supported service, and the interest is there among the companies that want to reach some of the platform's 220.67 million subscribers. But without an advertising leadership team in place, brands and agencies are concerned that Netflix may not have the capabilities to pull off its vision.

"They have been allergic to the word advertising," said Marla Kaplowitz, advertising trade group 4As CEO. "They would never utter it. They would have to use different descriptors, and even now they're trying to be above it."

What's more, with Disney+ launching its ad-supported version on December 8, there's more competition in the marketplace from an established player with deep advertising connections.

"There's no more denying that competitive choice is causing Netflix headwinds while Disney+ rides the tailwinds," said Mike Proulx, Forrester research director and vice president.

Multiple advertising agencies that have had private conversations with the company described an optimistic Netflix, which wanted to launch an ad version in 2022 but was unrealistic about the amount of planning and technical expertise it would take to pull it off. The agencies were not at liberty to disclose details because conversations are ongoing.

According to industry sources, the ad-supported service won't put commercial breaks in shows, as not to disrupt the viewing process. Advertisements will run before episodes and between episodes during binge sessions. There will also be opportunities to sponsor full shows. Netflix would not confirm these details. However, shows have already been filmed and cut, so adding traditional ad breaks would be a potential headache.

Advertisers who want to be a part of the new tier are running into confusion because there is no clear leadership established yet by Netflix and Microsoft – which is running Netflix's advertising technology – and too many questions are still unanswered. Netflix recognizes this but notes it is still trying to work out the details for potential partners.

"We are still in the early days of deciding how to launch a lower-priced, ad-supported option and no decisions have been made," a Netflix spokesperson said. "So this is all just speculation at this point."

One of the major sticking points for agencies and brands is cost. Netflix has been asking for top pricing, with one agency saying the company hopes to get an $80 CPM (cost per thousand — or mille in Latin — the industry standard when it comes to viewership-based pricing). It hopes to make a splash and announce with a few marquee advertisers on day one. For comparison, Hulu charges about $65 CPM with a proven model. One agency's internal models, which requested anonymity due to ongoing discussions, place Netflix around $40 to $45 CPM, given concerns about potential pricing, placement opportunities, and the number of people who may opt-in.

What's more, many budgets this year have already been allocated to Upfront commitments and other network agreements, including deals with Disney. Budgets won't free up until 2023, potentially in May when Upfronts begin, the period of time when these types of commitments are made.

A number of industry sources involved in these discussions described Netflix as being stunned by this revelation, leading them to push back the launch date. They also alleged that the company believed its name alone would command people to shift marketing dollars, no matter the time.

Bigger questions are swirling about how many subscribers will join Netflix's ad-supported service at the beginning. According to a survey done by marketing firm Antenna, only 12 percent of HBO Max's viewership is ad-supported. One agency's internal research estimates Netflix will only get about 20 million subscribers to convert over when the service launches, or about 9 percent of its current customers. It's more optimistic about Disney, which it believes can pull about two-thirds of its audience to an ad-supported version. (The Antenna survey puts Hulu's ad-supported subscriber base at about 58 percent of its total users.) 

Another agency pointed out that subscribers on the ad-supported version may be more likely be among households with lower income levels and more budgetary concerns, meaning it won't be a fit for luxury brands that have larger advertising budgets.

Others have concerns about Netflix's available inventory for advertising. Shows like Squid Game or Peaky Blinders may be popular among viewers but are not necessarily shows that brands want to appear next to, considering the violent content. The majority of Netflix's most-watched original shows tend to be for adults. Netflix had six of the top 10 most viewed original programs during the week of July 11 according to Nielsen with titles like Stranger Things, Resident Evil, The Umbrella Academy, D.B. Cooper Where Are You, Peaky Blinders, and Ozark, which aren't regarded as family-friendly.

"Everyone would have salivated years ago to get that Netflix audience and be really excited about doing deals," 4A's Kaplowitz said. "But the questions about who that audience is going to remain to be seen."