There Will Be Ads. And You Can Still Netflix and Chill.

When Neftlix Co-CEO Ted Sarandos announced Thursday, June 23, 2022, at the Cannes Lions advertising festival that his streaming subscription colossus would be adding ads — a la Hulu or Discover+ — consumers picked up their pitchforks like Nightflyers. Of course, sometimes consumers overreact, or react too quickly. And. This. Is. One. Of. Those. Times. But, that doesn’t mean lessons can’t be learned from Netflix’s bumpy-ride (and ad-based service rollout).

In the second quarter of 2022 alone, Netflix lost 200,000 (COVID era-only?) paying customers; the San Francisco Bay-based company’s strongest competitor, meanwhile, continued to expand, as Disney’s bundle of Hulu, Disney+ and ESPN+ crossed the 205-million-subscriber mark. Netflix made this earnings announcement on a call April 19, without warning and without clearly defined solutions to stop the bleeding. It didn’t go well. 

A mere five months before the unexpected April revelation, the Netflix stock, NFLX, had reached its all-time high, having joy-road the Netflix and Chill tidal wave from the COVID outbreak until right right before the pandemic panic began to palliate. In the month and a half following the April 19 statement, NFLX lost almost half its value; over the last six months alone, it has plummeted more than 70%. (I know I lost money pulling out too late!)

Needless to say, many Netflix boardmembers, investors, partners and customers feel like they’re drowning.

Nevertheless, Netflix has continued to flounder (I know, bad pun), veering further and further from its original vision, instead of deep-diving (another one) into what really matters: the customer experience; and the employee experience.

Instead of asking customers why they were jumping ship (last one, promise), or surveying OTG workers on their informed instincts, Netflix cut more than 150 employees, or 2% of its entire workforce. Numerous divisions have been impacted; the original independent features division, which focused on (the coolest) films with smaller budgets, has been “cleaned out;” “morale is stuck at sock level.”

And there went the momentum of the “revolutionary force” founded to take on traditional TV: the world’s largest subscription-based on-demand entertainment service that’s boasted for 15 years about basing its programming on the actual audience preferences of targeted “taste communities” instead of demographic groups. 

Knowing Vs. Monitoring Your Customers: Behind the Netflix Fails

Since taking the streaming market by storm in 2007, Netflix has done seemingly everything in its power to avoid venerating, disclosing or even using customer data — but has always claimed to know their subscribers better than any streaming or traditional competitor. 

In response to industry calls for greater transparency, Sarandos said in 2019 that “the data doesn’t help you on anything in [the show selection] process. Three years earlier, he said that “if we turn it into a weekly arms race… it’s going to have the same result that it has for television, which has been remarkably negative in terms of the quality of the shows.” 

But we all expect transparency (and consistency and understanding) from the brands we patronize. And it seems not prioritizing the customer hasn’t helped Netflix.

The red-and-black behemoth defined its early “programming against traditional television” by jacking all of HBO’s hard work, reconceptualizing the paid-television pioneer’s branding strategy to position itself “as a more engaging form of television, one that exists on a technological and cultural cutting edge.”

But what is cutting edge about binge-watching a documentary about weirdos caging tigers on private property? 

What’s so technologically advanced, today, about picking a new program from a ‘for you’ list of films and shows that don’t actually align with your viewing preferences and can be found on at least one to three other lists that supposedly don’t leverage audience targeting or personalization at all?

Albeit rhetorical, Netflix should have answers to these questions. As a paying Netflix subscriber myself, I’d love to know how high-tech operations have improved my viewing experience, or how a hundred shows about the same serial killer is better than one show named Dexter.

Likewise, in response to recent criticism for canceling almost two dozen shows featuring leads that were female, of color, or LGBTQIA+ identifying, a company representative brushed it off at an industry event, claiming mere coincidence when ‘continuing series’ “have a renewal rate of 67%, which is industry standard.” Huh!?

The industry veterans listening to that obfuscation aren’t stupid. Neither are today’s consumers, who switch between multiple platforms and devices every day. So, suggesting fair and balanced analysis “misleads” competitors and, more importantly, paying viewers, is foolish — if not insulting. 

According to Sarandos, “with streaming, [Netflix has] insights into every second of the viewing experience.” He, personally, knows “what you have tried and what you have turned off,” he said in 2012. “I know at what point you turned it off. It’s very sophisticated.” 

Sophisticated or not, whether it’s 2012 or 2022, consumers aren’t impressed by — or particularly comfortable with — being monitored, or spied on. Sarandos’s remark was, as the largest segment of our population would say, “creepy AF.” And he could’ve essentially said the same thing to uproarious applause simply by thinking like, empathizing with and speaking in the language of the viewer.

What do I mean? Here’s what Netflix and its CEOs could’ve done.

How Netflix Announced — and Could Have Announced — Its New Ad-Supported Subscription Tier

As noted by CNBC April 20, Netflix’s “business [had] benefited from coronavirus stay-at-home orders” but began to stumble with more people “spending less time on digital platforms as vaccines rolled out and mandates eased.” However, other streaming platforms didn’t fare as poorly — and somebody should have said: “Netflix, this is ‘a you problem.’” 

If anyone did, the bumbling brand didn’t pay attention, at least at first. In early March, the company’s CFO, Spender Neumann, said he’d “never say never” to an advert-supported subscriber tier, but “swiftly” added it’s “not something in [the] plans right now.” In April — and only while sharing the devastating financial news from 2Q22 — Netflix Co-CEO Reed Hastings was willing to admit the streaming service was “quite open” to adding advertising; but, he added, the team would “figure it out over the next year or two.” 

Or, the next month or two. 

“We’ve left a big customer segment off the table, which is people who say, ‘Hey, Netflix is too expensive for me and I don’t mind advertising,’” Sarandos told the Cannes Lions audience a mere two months after Neumann’s statement. “We’re adding an ad-tier; we’re not adding ads to Netflix as you know it today. We’re adding an ad tier…”

But it was too late. Netflix had already exposed itself as an inconsistent, uncertain and even inauthentic brand by not embracing a change that senior management most likely knew was inevitable all along.

Most likely, Netflix’s ad-supported tier will be like HBO’s, which arrived last year. Disney is planning something similar. And as Hastings pointed out during a May earnings call, “it’s pretty clear that [this model] is working for Hulu.” But by neglecting to control the narrative as well as electing to “just get in and figure it out as opposed to [testing] it and maybe [doing] it or not,” Hastings and Netflix have found only themselves working out of a gaping hole. Without much worker support (thanks to interoffice memos like May’s, reading: “Yes, it’s fast and ambitious and it will require some trade-offs”).

Before I even started researching for this article, when I typed “Netflix” into my Google Chrome browser, the autocomplete prediction suggested “adding commercials.” When you Google “Netflix adding commercials,” there are pages upon pages of search engine results like:

• “Here’s what it means for your next night in”
• “Why there’s no need to panic”
• “Could Netflix have stayed ad free?”
• “Netflix and the biggest opportunity ever in advertising”

What does this tell us? Two things:

1. Netflix advertising is a big win — for advertisers, but not necessarily end users. Just ask Jon Markman, a leading investment adviser, trader, columnist and author: “Netflix joining the digital ad onslaught changes everything, for the better. It means global targeted ads across the biggest connected TV platform in the world. It means greater inventory of digital ads… It is game-changing.”
2. Consumers are confused. And, as your sales and marketing teams can tell you, confusion is not often listed among the most common buying triggers.

And yet, the Netflix C-suite may want to consider celebrating confusion; it is, after all, better than sheer contempt — and Jason Hellerman of No Film School did say the company’s big splash into programmatic was “neutering what differentiated it from just regular TV.” Hellerman kicks off his April 20 piece (URL: /netflix-is-just-tv) lamenting, “When Netflix came onto the scene, it felt revolutionary.”

It did. But now it feels feckless, and forced. 

“Those who have followed Netflix know that I have been against the complexity of advertising, and a big fan of the simplicity of subscription,” Hastings said April 19. The 61-year-old, graying white Co-CEO would proceed to ‘reveal’ he’s a “bigger fan of consumer choice” — but our minds had already raced to our favorite film, cut up and interrupted with prescription drug commercials.

Had Netflix not hesitated, and instead strategized how to use a lower-priced ad-supported subscriber tier to promote the brand, this never would’ve happened. A lower-price subscription tier further democratizes home media streaming. A lower-price subscription tier appeals to families impacted by layoffs, hour reductions and wage cuts caused by COVID. A lower-price subscription tier is perfect for students, new graduates and young workers. Seriously: What. Were. They. Thinking!?

During the ill-fated call that sent many Netflix careers careening, Hastings also told listeners “allowing consumers who would like to have a lower price, and are advertising-tolerant, [to] get what they want, makes a lot of sense.” He could have said:

Providing a larger percentage of our world’s beautifully diverse population with at-home excess to the best in media streaming was a no-brainer for us. We strive for diversity, equity and inclusion in hiring and promoting, so of course we’re aiming to apply a similar mindset to our customers.

If I were his advisor, that’s what I would’ve suggested. But, first, I would’ve demanded the Co-CEOs approve a targeted digital marketing campaign promoting the brand’s new, lower-priced, society-improving subscription tier — particularly if Hastings is telling the truth when he claims Netflix will launch its programmatic ad platform without the data tracking and ad matching still being embraced by competitors and the top players in adjacent industries (e.g., Verizon, AT&T and T-Mobile, the top-three telecommunications companies).

As I demonstrated in my story on the failings of the third biggest cell service provider: we don’t want to be tracked and targeted — even if it improves our viewing or listening experience. And this is particularly true of the very populations brands most want to target in our post-George Floyd, metaverse-era business environment: 

• Young people, who actually understand the dangers of hackers, spyware, malware and the like
• Groups that have been historically disfranchised as well as targeted by hate groups and police, including Black and Indigenous people, people of color, and members of the LGBTQIA+ community, which voted decisively recently against receiving more personalized communications from brands — again, even if it would improve their individual lives or enable well-intentioned companies to deepen their talent pools and improve diversity, equity and inclusion in the workplace (and we know companies devoted to DEI earn 140% more revenue and are 170% more innovative and 70% more likely to capture a new market)

After sharing this survey, I spoke to@KitOConnell (@TexasObserver)@SiebeforORD1@FayeEcklar@AndyEyeballs (@NLGnews x @ChosenFamilyLaw)@JohnTeufelNYC@kittystryker

On brands targeting #LGBTQ people

For an article on how NOT to be like @TMobilehttps://t.co/ueubX6Jb12 https://t.co/AlmRVaMmwE pic.twitter.com/KKesmGympq

— Philip Mandelbaum (@philmandelbaum) June 30, 2022

So, Netflix could have capitalized on others’ hesitation, when it comes to embracing consumers’ (and specifically so-called minority consumers’) privacy requirements and leveraging only zero- and first-party data to better listen to, understand and speak to customers and prospects. Netflix could have used a competitive differentiation to help authenticate a message of diversity, equity and inclusion incorporated consistently across each and every element of the brand’s digital marketing campaign, designed to spread awareness of the brand’s leadership in overcoming economic barriers after a devastating pandemic.

Then, when Netflix leadership was forced to admit its post-COVID losses, the negative sentiment could’ve been significantly tempered, if not completely turned around, by diverting media and consumer attention to the brand’s intentional strategy to increase revenue by doing good.

How? Simple.

9 Ways Netflix Should’ve Distracted Us From Its Damaging Earnings Report

As we’ve demonstrated, there are so many things Netflix could’ve done. If Netflix had hired CEI to consult and I had been asked to lead, I would’ve suggested the world-famous brand:

1. Immediately refine its post-cancelation messaging to focus more on demonstrating customer centricity and gathering insights than changing minds, which would inevitably cause numerous past customers to reconsider
2. Sell the strategy internally, ensuring everyone who works for the company fully understands the benefits, and offer incentives for creating social media content promoting the brand and/or its new subscription tier
3. Go back to its roots, interviewing its longest-standing employees about their memories and cherrypicking the best notes from the company’s earliest files, and then creating a video series with the employees and founders reminiscing about the brand’s revolutionary spirit and underdog mentality
4. Conduct a market study and host focus groups to learn as much as possible about consumer sentiments and competitive offerings
5. Develop its influencer marketing program, identifying the young entrepreneurs, activists, celebrities and social media stars with the most engaged, dedicated audiences who’d pledge allegiance to the platform and/or create content promoting the corporate responsibility demonstrated by Netflix’s plan to accept advertising
6. Launch a post-pandemic Netflix and Chill campaign, soliciting and sharing user-generated content in the form of #NetflixAndChill-tagged social media submissions from subscribers, as well as designing and publishing a new, interactive, user-centric landing (or web) page for viewing and discussing submitted customer photos and videos (writer’s note: a current search of the aforementioned hashtag may not be SFW)
7. Develop its voice-of-the-customer program, conduct customer service surveys, measure its customer satisfaction score, and train its customer experience professionals to ask the right questions, listen and take notes for analysis — and then leverage the new info to improve its product, brand messaging (particularly related to lost subscribers or platform changes), and the processes followed by the company’s support (and sales) agents
8. Do a press run, distributing a press release on the brand’s renewed focus on the customer and ‘the little guy,’ landing guest blogging opportunities for senior product professionals, and offering the media access to a full slate of specially trained employees (and appropriately compensated and trained high-value customers) for interviews 
9. A/B test with beta audiences before saying a single thing about the plan publicly

Want to learn more about customer centricity?

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Image Credits (in order of appearance)

1. Photo by David Balev on Unsplash: https://unsplash.com/photos/iLwDW2lSOzk
2. Photo by Venti Views on Unsplash: https://unsplash.com/photos/lI7dlA5VBp8
3. Photo by Sayan Ghosh on Unsplash: https://unsplash.com/photos/YL12bny5HjE
4. Photo by Malte Helmhold on Unsplash: https://unsplash.com/photos/fb1Dy-h3tm0