According to the latest report, in order to place advertising, Netflix began to seek help from competitors. Netflix executives have met with representatives from Roku and Comcast in recent weeks to discuss working together on the ad business that will handle advertising in Netflix’s upcoming ad-based service, according to people familiar with the matter.
With this partnership, Netflix doesn’t have to build its own ad sales team or invest huge sums of money in technology to run ads between or in the middle of shows. Netflix hopes to officially launch the service by the end of the year, and relying on partnerships with other companies will undoubtedly make this ambitious plan a lot easier.
Both Roku and Comcast are Netflix competitors. Comcast-owned NBCUniversal owns the Peacock streaming service, and Roku offers the free Roku Channel and monetizes through an advertising model. The latter is also making a big push into self-produced content to compete with other services.
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However, doing business with a competitor is not uncommon in the entertainment industry. Comcast’s Freewheel has talked to Netflix about how it can help it with ad tech, and they also power digital advertising for a number of competitors, including Paramount Universal. YouTube also handles ad tech for Disney’s streaming service.
This kind of foe and friend relationship has become more common in the streaming industry. In some cases, tech companies are also taking advantage of sales from established media companies. For example, NBC Universal acts as the exclusive ad seller for Apple’s Apple News service.
In addition, media companies also collaborate with each other in different regions. For example, Paramount Universal has partnered with Comcast’s Sky division to launch Paramount+ in Europe.
Industry experts have said such a model could lead to mergers and acquisitions. But today’s mergers and acquisitions are increasingly difficult and disruptive to businesses, leading to a growing willingness to cooperate.
“In an ever-changing industry like media and entertainment, there is no permanent enemy,” said Scott Schiller, global chief commercial officer at marketing and advertising firm Engine. “Everyone is talking to each other because no one knows. which model will work.”
Netflix has yet to appoint a head of advertising, but they have already started running some pre-roll ads in the fourth quarter, which are ads that run before shows. Executives at the company are also discussing whether to place ads in the program tiles on the home screen, people familiar with the matter said.
At the same time, Netflix is addressing other ad-model-related issues. The company’s executives have started talking to entertainment companies about putting ads in the content they’re licensed to play. There are ad-free and ad-free models when entertainment companies license the rights to broadcast TV and movie content. To get both licenses at the same time, Netflix would have to pay about 20 percent more than it currently does, people familiar with the matter said.
These negotiations are similar to those that Netflix made several years ago when it offered users to download content. In this way, users can download content in advance when there is an Internet connection, and continue to play offline content when the Internet is unavailable. But to achieve this goal, they had to renegotiate licensing agreements with many copyright owners.
“We’re still in the early stages of making decisions about how to offer an ad-supported service at a lower cost,” a Netflix spokesperson said. “So this information is just speculation.” Roku spokesman declined to comment. A Comcast spokesman also did not respond.
There were rumors last week that Netflix might acquire Roku. But the two sides have not moved forward with such deals, people familiar with the matter said. Such a deal is unlikely, for a number of reasons.
For example, Netflix has no intention of entering the hardware market, and this approach may not satisfy shareholders, after all, hardware profit margins are low and competition is fierce. Given that Netflix’s stock has fallen 72% this year, they’re unlikely to make any decisions that will upset investors.
Another problem is that if Roku is acquired by Netflix, its position as an independent distribution platform will be affected. Regulators are likely to scrutinize the deal.
