Netflix Has Created a Huge Upside for Brands — but Now Must Monetize Better

Netflix continues to adapt its approach to entertainment — not just with content but also by incorporating intriguing brand integrations within shows such as Stranger Things, a practice that gives branding partners free advertising and Netflix more awareness and merchandising opportunities. But as Netflix grows its global subscriber base amid increased competition and attempts to offset its production costs (and, dare we imagine, someday make a profit), the pressure is mounting to monetize its brand integrations and possibly accept traditional advertising.

Netflix’s Q2 Curse Strikes Again

Within a few short weeks, Netflix has:

• Lost popular content to competitors. Both Friends and The Office are exiting the platform in 2020: Friends to WarnerMedia’s new streaming service, HBO Max, and The Office to NBCUniversal’s forthcoming streaming service.
• Even worse, lost subscribers. This month Netflix shocked investors by announcing in its quarterly earnings that it had lost subscribers for the first time in eight years — a combination of a price hike and a content lull. Netflix said it lost 126,000 domestic paid subscribers, when analysts had expected a 352,000 gain. In the aftermath of its earnings miss, Netflix’s stock price suffered a 10 percent decrease.

It’s not the first time Netflix missed its subscriber addition projections. These setbacks have sparked another round of speculation that Netflix will need to abandon commercial-free streaming and start accepting advertisers to offset the rising costs of producing original content.

Authentic, Story-Driven Co-Brands Offer a Glimmer of Hope

Amid the bad news, Netflix has already demonstrated how it might generate additional revenue streams — not with traditional ads but through inventive co-branding efforts that capitalize on the popularity of its original content — with Stranger Things being a case in point.

Netflix’s tent pole series Stranger Things 3 has attracted 40.7 million viewers, more than any other Netflix film or series, in the first four days of its release. Those are impressive numbers at a time of media fragmentation, when it’s increasingly difficult for any network to reach a mass audience.

Netflix now has an opportunity to monetize those eyeballs. Several brands have partnered with Netflix to capitalize on the popularity of Stranger Things by developing product campaigns that integrate into the 1980’s nostalgia-fueled show’s plot. For example:

• Coca-Cola brought its defunct New Coke product back to the market in summer 2019 to capitalize on the fact that Stranger Things 3 is set in 1985, the year New Coke launched before being shelved, and characters on the show are seen drinking New Coke. Geoff Cottrill, senior vice president of strategic marketing for Coca-Cola North America, told Variety, “We want to look for ways to work with Netflix, but only in ways that don’t interrupt consumers, and don’t get in the way of the entertainment. If we can find ways to integrate authentically and add value to the experience, then we want to be a part of it.” As a result, Coca-Cola earned more than 33 billion total media impressions over a 60-day period, accounting for $1.2 billion in media value.
• Bike manufacturer Mongoose has been offering a limited-edition, Stranger Things-inspired BMX bike modeled after the bicycle Max Mayfield rides in the show — a case of real life imitating art. The bike, which features tons of ‘80’s flair, has been available at stores such as Target since June 30.
• Baskin-Robbins recreated the fictional “Scoops Ahoy” ice cream shop at a Burbank, California, location, which offered a special-edition flavor inspired by the show. Within two weeks, the location saw a 150-percent increase in sales. Overall, Baskin-Robbins generated more than 5 billion media impressions.

These examples are just the tip of the iceberg when it comes to the potential for Netflix-brand tie-ins. Other brands appearing in Stranger Things 3 include Adidas, Burger King, Cadillac, Casio, Chevrolet, Dairy Queen, Kellogg’s, Nike, 7-Eleven, Cadillac, Chevrolet, Casio, 7-Eleven, Nike, and Schwinn, and more. Those appearances are crucial because the show’s plot often entails the main characters using products from the 1980s (the show famously taps into the characters’ fascination with shopping malls).

According to Concave Brand Tracking, the 100 brands whose products appeared in Season 3 achieved the equivalent of $15 million in advertising in the first three days following its release. Keep in mind that Netflix does not charge brands for these product placements and earns revenue from licensing.

Adapting a Model Mastered by Disney

Given the pressure to offset its costs, paid product placements are a likely strategy for Netflix, along with an aggressive dialing up of licensing products for Netflix shows — especially with the hiring of Christie Fleischer, a former merchandising and consumer product executive at Disney. In addition, look to Netflix to monetize its growing gaming business. While all eyes have been on its movies and TV series, the company has been developing gaming experiences, including a mobile game based on Stranger Things, to be launched in 2020. Gaming is a $180 billion market. And it’s an accepted avenue for businesses to advertise and monetize through in-game rewards. Fortnite generates $300 million a month in this fashion.

The stakes are high. Netflix risks alienating its audience if it introduces traditional advertising, especially as it fights forthcoming ad-free services such as Disney+ for viewers. The recent loss of subscribers shows that its audience will walk if they don’t like what they see. However, Netflix also needs to satisfy the investors floating the company’s ballooning debt who already feel upside down (pun intended). With a rough estimate of $1 billion in topline revenue from consumer products annually already being largely left on the table, one should expect more pressure for Netflix to embrace some monetization opportunities, from licensing to product placement, and be less of a creative purist.

The next few quarters are crucial for Netflix. They need to either show their big engine for subscription revenue or add some side cars that provide meaningful opportunities to generate revenue. To date, Netflix has worked with brands as purely symbiotic partners. The question is whether market forces, including increased competition from entertainment industry stalwarts such as Disney, will force disruptor Netflix to embrace proven brand advertising monetization models and/or invent new ones.