LOS ANGELES, CA – JUN 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 Charlie Gallai/Getty Images for Netflix)
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CANNES, France. As the world’s biggest ad conference kicks off here this week, all eyes will be on Netflix for clues as to how the streaming giant plans to abandon its ad-free business model and offer a cheaper subscription for the first time.
Netflix co-CEO Ted Sarandos is due to wrap up a week of performances on Thursday at the Cannes Lions festival, which returns after a two-year hiatus during the pandemic and named Sarandos “Entertainment Person of the Year.” The panel is being held amid expectations that demand for cheaper, ad-supported streaming subscriptions will rise as inflation forces people to cut spending.
Participants will also be looking for clues as to who Netflix will partner with for its foray into the advertising world, which it plans to ramp up quickly to start selling ads as early as the fourth quarter. Sources told CNBC that Netflix met with Google, which makes most of its revenue from advertising. He also met with Comcast/NBCUniversal and Roku to discuss ad sales partnerships, The Information previously reported. NBC Universal and Google declined to comment.
“We are still in the early stages of deciding how to launch a cheaper ad-supported option and no decisions have been made yet. So at this point it’s just speculation,” Netflix said in a statement.
The company hopes to find marketing partners within the next two to three months, as well as quickly hire a senior executive and assemble a team to manage relationships with its partners, according to a source who asked not to be named.
Directing advertising dollars towards streaming entertainment is the main thing for many festival goers. In April, Netflix said it would offer a cheaper, ad-supported option after first reporting a loss of subscribers due to increased competition in streaming. Sarandos’ performance at Cannes was scheduled before Netflix announced its upcoming move.
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Disney+ is also preparing to launch an ad-supported service later this year. Paramount+ has an ad-supported tier and a free ad-supported Pluto. Discovery recently teamed up with Warner Brothers with an expected mix of streaming services and Roku with a growing advertising business. CNBC’s parent company, NBC Universal, is also already offering cheaper advertising subscriptions to its Peacock service.
The company will need to weigh the advantages and disadvantages of each of the potential partners. Google, for example, has the advantage of being the world’s largest advertising giant, but it has less experience with entertainment content despite its recent entry into the market. Comcast doesn’t have the same global reach as Google, but its NBC Universal division is the leader in selling ads for this premium TV content. The cable giant’s advertising technology platform, Freewheel, is also used by many media companies and can offer its software tools to Netflix to buy ads.
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Another option is Roku, a longtime partner of Netflix that previously forked from the streaming giant. As the largest TV operating system in the US, Roku has the edge in its scale in the US, Canada, and Mexico, as well as its understanding of ad-supported subscription trends.
Potential partnerships will continue the long history of bringing competitors together in the media industry. As a content distributor and entertainment company, for example, Comcast regularly strikes distribution deals with its rivals NBC Universal. And Roku has partnered with streaming apps for TKKT to offer its own free, ad-supported alternative on the Roku channel.
The stakes for Netflix are high. Its shares have fallen nearly 50% as it warned of shrinking its subscriber base. Offering a cheaper, ad-supported service is one way to prevent cancellations from continuing as people look to cut costs, but Netflix must ensure ads don’t turn viewers off.
Disclosure: CNBC is owned by Comcast’s NBCUniversal.