Is the streaming platform laying the groundwork for a bigger move into commerce?
With a pair of announcements this week, Netflix is introducing more commerce-friendly components to its business.
Through an immersive retail experience and new ad-supported tier, the streaming platform is set to become a player in the movement of goods.
Here’s a look at the news:
On Thursday, Oct. 13, a new store Netflix at The Grove will open in Los Angeles.
Located in shopping and entertainment district The Grove, the store will be designed as an immersive experience that brings fans closer to characters from shows on the platform, and allows them to buy merchandise from the series.
The 10,000-square-foot pop-up store is set to feature a “broad range of limited edition items” from shows including Stranger Things, Bridgerton, Squid Game. This includes apparel, collectible Funko figures from Squid Game and Stranger Things and a book on Bridgerton written by creator Shonda Rhimes. Children’s merchandise will also be available, including the dollhouse from Gabby’s Dollhouse, and activity books from Ada Twist, Scientist and Cocomelon.
Along with merchandise, the store will have life-size likenesses of characters including Vecna from Stranger Things, the Young-Hee doll from Squid Game, Queen Charlotte’s throne and more. In December, the second floor of the store will transform for the holidays with interactive and social-media-ready moments from shows like Guillermo del Toro’s Pinocchio, Slumberland, Enola Holmes, The School for Good and Evil, Matilda, and Emily and Paris, as well as new holiday shows debuting this year.
This isn’t the first time Netflix has opened a store around its shows. It has launched retail experiences before that were centered around specific titles like Stranger Things and Bridgerton. It also opened an ecommerce store with merch from many of its shows last year.
“Following the incredible success and excitement from our fans for our immersive experiences around the globe, this felt like the most organic next step to continue our growth and bring Netflix’s most beloved shows together in a completely new way,” said Greg Lombardo, head of live experiences at Netflix, in a statement. “Celebrating our fans and giving them the opportunity to put themselves in the world of the stories they love is at the heart of what we do, and we’re thrilled to bring this experience to life at The Grove.”
With the store, Netflix is taking characters and worlds that are seen on the screen, and bringing them to the physical world. The fact that fans can own a piece of popular shows only deepens the connection with the viewing experience it offers.
The move comes at a time of new experimentation at the intersection of content and commerce. Disney, long a master of merchandise crossovers, is reportedly set to offer commerce as part its Disney+ platform, allowing viewers to purchase a product that ties in with a show while watching. Roku and Walmart are also partnering on shoppable ads. Netflix hasn’t revealed any plans for shoppable content to this point, but putting the merchandise in place and creating excitement around it figures to be one step it will need to take to get there.
The exterior of Netflix at The Grove. (Courtesy photo)
Come November, Netflix viewers will have the option to pay less, but receive ads.
Netflix said it will launch a new, lower-priced plan called Basic with Ads on Nov. 3.
Available for $6.99 a month in the US, the plan will air 4-5 minutes of advertising per hour, with ads running 15-30 seconds each before and during shows and films. The content will mostly be the same, with exception of “a limited number of movies and TV shows won't be available due to licensing restrictions, which we’re working on,” Netflix said.
Netflix said it will offer “broad targeting capabilities by country and genre” to advertisers. It will also collect date of birth and gender at signup as it looks to improve targeting over time.
"We think this is a big win for advertisers, and a big win for our members. If people are going to choose that they want to be in the ad-supported tier, it's important that we show ads that are relevant to them, said Jeremi Gorman, president of worldwide advertising at Netflix, adding that the data will not be used to build profiles on other services.
Netflix has a host of partnerships in place for its advertising tier. It previously announced a partnership with Microsoft to put the technology in place. On verification, Netflix will start working with DoubleVerify and Integral Ad Science to verify the viewability and traffic validity of ads starting in the first quarter of 2023. It is also using Nielsen’s Digital Ad Ratings in the US to help advertisers understand how they can reach a target audience.
“The switch from linear is happening at an ever increasing speed, with streaming now surpassing broadcast and cable in the US,” wrote Netflix Chief Operating Officer and Chief Product Officer Greg Peters, in a statement. “We’re confident that with Netflix starting at $6.99 a month, we now have a price and plan for every fan.”
The ad plan has been widely reported as a move to help Netflix access new revenue streams as it faces a slowdown in subscribers, and has had to make layoffs. There’s no question that that’s a key factor. In the second quarter of 2022 alone, it lost nearly one million subscribers, marking the second straight quarter that paying members declined.
Yet the streaming service is also moving into a market where there is opportunity for growth. Connected TV, or CTV, is gaining increasing traction with advertisers following the streaming explosion of the pandemic. Despite the losses, Netflix remains a leader in the streaming area, and it should be an attractive option for advertisers. The service’s executives apparently recognizes this, as it set out to price the offering at $65 CPM and eventually charge up to $80, which is far higher than other platforms, the Wall Street Journal reported.
Netflix said it has nearly sold out all inventory for launch, and executives spoke of a diverse group of advertisers, including automakers, CPG, travel and retailers.
In the months since Netflix said it would introduce ads, there has been some speculation that the service will also be able to innovate in the way ads look, especially given the way it has brought new features to the way we watch overall (remember life before binge watching?). But, at least at launch, it doesn't appear that Netflix ads will look all that much different from other ads. Demos for L'Oreal and NYX spots that were played during a press call on Thursday revealed an experience that looks similar to other video-based TV ads, albeit with only brief ad playing in between the content as opposed to a block.
There were hints of more to come. Gorman said that Netflix sees "magic" happening when the content and ads are complementary. The data that is collected at signup could also support more behavioral ads in the future.
The ad tier’s rollout is happening within a swift six months of the initial announcement, and Gorman said the roadmap is "TBD" from here. From the foothold that is being built with the announcements this week, it’s a fair bet that commerce will play a bigger role in the platform.
“What we do at launch will not be representative of the long-term opportunity of what the product will be,” Gorman said of the ad product.