Disney+ and Netflix adopting the old network ad model. Do we follow?

The race is on to turn the entertainment platforms of the future into the legacy broadcast networks of yesteryear.

That's how it seems, as the popular streaming services Netflix and Disney+ introduce ad-supported tiers. They're joining peer streamers like Hulu, Peacock, Paramount+ and HBO Max. These services already offer a variety of subscription tiers with and without ads. New offerings represent a potential bonanza for marketers. That's because Netflix and Disney+ are streaming titans, each boasting premium content, solid reputations and huge audiences.

But there's a catch—a couple of them, in fact.

First, both companies are charging exceptionally high prices to advertisers. According to reports, Netflix asks about $65 CPM, and Disney charges up to $80 CPM. That's substantially higher than most other streamers, with Hulu, Peacock and Paramount+ all in the $20-$40 CPM range.

The other obstacle relates to the severely limited targeting capabilities on offer. After launching its ad-supported tier in November, Netflix enabled advertisers to target based on only a few broad categories like genre and country. They did this while promising some additional segmentation categories down the road, like age and gender.

Ads buys based only on broad-strokes audience characteristics? In an era where advertisers are accustomed to using rich, first-party data to reach specific consumers?

The Next Big Thing in video advertising looks a lot like the process of buying a network-TV ad two decades ago.

That realization is sparking a moment of reckoning for advertisers, who must decide how strongly they value advanced tracking capabilities and cross-channel resolution compared to raw reach. Many advertisers might choose not to spend big to chase customers reachable elsewhere.

Instead, they'll likely determine they prefer the specially and measurability afforded by solutions enabling them to recognize individuals or household members across multiple devices and content platforms.

That level of visibility is incredibly valuable, as it can foster stronger customer relationships and better ad fatigue management. And it can also provide greater insight into TV ads' role relative to a brand's broader marketing mix across channels ranging from podcasts to online video and display.

Where the industry is heading

The path forward is programmatic ad buys that allow brands to connect to individuals across devices and platforms using identity solutions such as Epsilon's CORE ID. That's where the industry is heading. In many senses, it's already arrived. Epsilon's connected TV offering provides advertisers access to an abundance of streaming and linear video inventory that supports exactly that sort of targeted, measurable, cross-channel campaigns. Epsilon's recently expanded partnership with iSpot.tv even extends that capability into linear TV.

Emerging programmatic ad exchanges

Of course, those emerging programmatic ad exchanges will likely eventually include Netflix, Disney+, and any other streamer eager to compete at the top of the market. There are signs Disney+ is already headed in that direction.

Netflix, meanwhile, surprised many industry observers last summer when it tapped Microsoft as the tech partner to support its ad business. One clue is Microsoft's late 2021 acquisition of programmatic exchange Xandr, which it purchased from AT&T. Xandr's presence within Microsoft suggests that perhaps Netflix also knows the future is targeted and programmatic.

A slow-play transition?

One reason Netflix may be slow-playing its transition is that it will likely take time for Microsoft and Xandr to integrate fully. Another reason is that Netflix seems to be taking a labor-intensive approach to preparing its content for ads by manually identifying and marking the ideal insertion points within content that weren't originally designed to include commercial breaks. Awkward CTV ad interruptions are not exactly winning points with consumers.

What that suggests is that Netflix and Disney both are interested in ad-supported content. And both believe it will rely on programmatic ad buys that facilitate strong identity resolution across channels, just like most of the rest of the ads people are served on digital devices.

Yet both companies are also waiting for their markets and platforms to mature. And remember, the vast majority of the hundreds of millions of subscribers to Netflix and Disney+ are currently on the streaming services' paid plans and, thus, inaccessible to advertisers. So the companies are launching their ad-supported tiers using an old model—as old as over-the-air network television—and hoping that advertisers are willing to go along for the ride based on the companies' audiences and reputation.

It's a smart move, especially considering that many advertisers are so familiar with the old network model that some will likely forget it's no longer good business. But the better play for brands is to push forward with an ad-buying strategy rooted in identity and enabling rich targeting—not only on CTV and streaming platforms but across devices. By building those muscles, brands will see better measurement and ROI in the short term and be ready for the grown-up version of programmatic streaming whenever it finally arrives.