Can Netflix Accelerate Roku’s Acquisition to Take Advantage of the $9 Billion Mid-Term Election Ad Market?

Netflix’s desire to rapidly increase its ad-supported rates — and the streamer’s reported interest in get video streaming platform Roku — probably driven by dan very profitable motivation: political advertising.

“There’s a $9 billion pot of gold at the end of the rainbow if Netflix can run commercials in September,” Dallas Lawrence, senior vice president of Samba TV, told TheWrap.

It projected The $8.8 billion spent on advertising for the 2022 midterm represents a huge jump from the $3.9 billion spent on the 2018 midterms and is close to the $9.5 billion set during the 2020 presidential election. This would be the highest amount ever imagined for a midterm election. time as the competition for the House and Senate continues to heat up.

With such a powerful market looming on the horizon, Netflix could see Roku — which offers a well-established and successful ad-based video on demand (AVOD) infrastructure and has grown to more than 60 million active domestic users — as a valuable shortcut to drive streaming ambitions. Giant AVOD.

Representatives for Netflix and Roku declined to comment for this article.

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“Netflix is ​​moving fast. Entire companies are designed to be lean, ruthless entrepreneurial machines,” David Offenberg, professor of entertainment finance in LMU’s College of Business Administration, told TheWrap. Given the corporate identity and financial crisis Netflix has experienced since reporting a loss of 200,000 subscribers in the first quarter, he expects streamers to build on the AVOD side of the business at high speed despite the upcoming election opportunities, which look like potential. added bonus.

“The midterms will help get their numbers out of the gate. It’s definitely going to look good from a Wall Street angle, and will probably give them a nice raise in revenue,” Offenberg said.

In May, Netflix executives informed employees that the market-leading streaming service was aiming to introduce its upcoming ad-supported tier. end of 2022, faster than expected. Netflix Co-CEO Reed Hastings originally notified investors that the ad-supported rate may come in the “next year or two.” (Historically, Netflix’s leadership has always chosen to build internally rather than relying on outsourcing or external acquisitions to get the infrastructure or software needed.)

And Roku’s stock, which has been in steady decline throughout the year, see a brief rebound earlier this month on unconfirmed reports that Netflix may be considering acquiring the company, which was developed within Netflix before splitting up in 2008 ahead of the launch of the first Roku set-top box. (Roku shares closed Wednesday at $91.19, down from a 52-week high of $490.76.)

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However, it’s still unclear whether the two sides can finalize a deal in time for Netflix to benefit from the midterm election ads. The Walt Disney Company’s purchase of 21st Century Fox didn’t become official until 12 months after it was first announced — and it took nearly a year for Amazon’s acquisition of MGM to close. Even Sony’s purchase of anime streaming service Crunchyroll lasted nine months. Then again, Warner Bros. Discovery began trading on the Nasdaq just about 10 weeks after AT&T announced the WarnerMedia spinoff.

Even if the timing is right, not everyone sees the swirling streaming rumors as Netflix’s strategic breakthrough into a lucrative but polarizing new arena.

“I don’t feel like it’s a Trojan Horse to get into the political advertising space,” Michael Lyons, chief investment officer of JuiceMedia.io, a media activation agency for global brands and direct-to-consumer companies, told TheWrap. “While it may be tempting, political advertising is highly divisive and will likely lead to a negative brand experience, so the short-term gains may not outweigh the long-term brand impact.”

Disney, known to be very protective of family-friendly brands, has showed that the upcoming level of ad support for Disney+ will not host political or alcohol ads — unlike Roku, which already accepts such ads.

Whether or not there’s a real fire in the smoke of this Roku acquisition, Netflix is ​​on the verge of a big new revenue generator. Buyers of political ads have long craved precision and digital targeting on the world’s most populous TV network, but never had the opportunity. While political campaigns have invested in connected TV ad inventory in the past, a prime placement on Netflix will represent an entirely different animal.

“The ability to purchase Netflix inventory will ensure that there isn’t a second of Netflix screen time that a political ad buyer isn’t buying in this cycle,” Lawrence said.

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This can be called a short-term and long-term strategy. All of the same buyers scrambling for exposure in the midterms next fall will also be buying in the 2024 presidential election less than two years from now. Netflix’s AVOD tier fall launch can be used as a testing ground for programmatic advertising targeted towards 2024 — when political ad spend could easily exceed $10 billion.

Yes, Netflix has softened it before attitude on AVOD only after that dramatic stock fall this year demonstrates the urgent need to diversify its revenue streams at a time when subscription growth is steady — or even reversing. After all, self-preservation is a powerful motivator. (Netflix stock closed Wednesday at $178.89, down 70% from the start of the year.)

While the landing of political ads may have been a factor, Lyons said, “This is a way for Netflix to better monetize the content it acquires and ensure that its distribution network is secure.”

With the recession looming and the prospect of layoffs and consumer belts tightening, Netflix wants to secure as much of its subscriber base as possible by giving consumers cheaper options. On the other hand, Offenberg notes that ad spending tends to fall during a recession, so Netflix could enter a dismal advertising winter once its mid-term advertising campaign ends in November.

Some analysts predict that Netflix may be able to reinvent the AVOD model as a whole and offer a better value proposition to potential advertisers than its competitors. “It would be a shock if a capable and advanced company, with an extraordinary talent pool, simply delivered the same advertising experience as legacy media does,” Jon Cohen, SVP of Frequency, an ad-supported content packaging distribution provider, told TheWrap. . “Maybe at first they will, but I hope they innovate for this. They’ve done it in almost everything else in their evolution.”

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