Netflix Could Generate $3B From Ads After Its New Deal With Microsoft

Christian Hetrick

Christian Hetrick is dot.LA's Entertainment Tech Reporter. He was formerly a business reporter for the Philadelphia Inquirer and reported on New Jersey politics for the Observer and the Press of Atlantic City.

Netflix Could Generate $3B From Ads After Its New Deal With Microsoft
Photo by Venti Views on Unsplash

Netflix’s decision to partner with Microsoft for its ad-supported subscription plan could put the company on track to generate a multi-billion dollar ad business.

The struggling streaming giant could boost its revenue in the U.S. and Canada by $3 billion, or 20%, by 2024, Bloomberg Intelligence tech and media analyst Geetha Ranganathan recently wrote to clients. She added that Netflix could use ads to potentially monetize 25% of its U.S. and Canadian subscriber base, or about 19 million people.


Assuming the streaming service airs seven ads an hour, she estimated around $750 million in new quarterly ad revenue, or $3 billion for the year, in the U.S. and Canada. A more conservative estimate suggests a $1.25 billion revenue opportunity by 2024, she said.

“Given the average user spends two hours a day on the platform, Netflix's opportunity appears compelling,” Ranganathan wrote.

The streaming giant has raced to introduce a cheaper subscription tier this year after it lost subscribers for the first time in a decade. Since Netflix set a tight deadline for itself to launch the low-cost plan, the company sought an outside partner to handle the ad sales and technology.

In tapping Microsoft, Netflix is choosing an established player in the online ad business—without having to work with a direct rival. Netflix reportedly kicked the tires on Comcast and Google, but both of those companies have their own streaming services. In addition, Microsoft offers strong privacy protections for consumers, Greg Peters, Netflix’s COO and chief product officer, wrote in a blog post.

The outlook on Netflix has been dire lately; the company shed 200,000 subscribers at the start of the year and is expecting to lose two million more during the quarter that just ended. But with a global customer base of 222 million, it also has the potential to build a significant ad business.

Netflix is still in the “very early days” of developing its ad-supported plan, Peters said, adding that the company is reportedly aiming for a launch by year’s end. Whenever Netflix starts airing commercials, it’ll join an expanding roster of streaming services opting to sell cheaper subscriptions with ads, including Hulu, HBO Max and Peacock.

As consumers continue to cut the cord on traditional cable TV in favor of online streaming, they’re increasingly opting for these less expensive plans. Spending on internet-connected TV ads, meanwhile, has rapidly risen in recent years, jumping 60% in 2021 alone, according to research from Insider Intelligence.

“Despite the lack of ad infrastructure, Netflix dominates U.S. streaming viewership, which we think will allow it to quickly ramp up ad revenue,” Bloomberg’s Ranganathan wrote.

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How the 'Thrift Haul' Trend Boosted the Secondhand Ecommerce

Lon Harris
Lon Harris is a contributor to dot.LA. His work has also appeared on ScreenJunkies, RottenTomatoes and Inside Streaming.
How the 'Thrift Haul' Trend Boosted the Secondhand Ecommerce
Evan Xie

If you can believe it, it’s been more than a decade since rapper Macklemore extolled the virtues of thrift shopping in a viral music video. But while scouring the ranks of vintage clothing stores looking for the ultimate come-up may have waned in popularity since 2012, the online version of this activity is apparently thriving.

According to a new trend story from CNBC, interest in “reselling” platforms like Etsy-owned Depop and Poshmark has exploded in the years since the start of the COVID-19 pandemic and lockdown. In an article that spends a frankly surprising amount of time focused on sellers receiving death threats before concluding that they’re “not the norm,” the network cites the usual belt-tightening ecommerce suspects – housebound individuals doing more of their shopping online coupled with inflation woes and recession fears – as the causes behind the uptick.

As for data, there’s a survey from Depop themselves, finding that 53% of respondents in the UK are more inclined to shop secondhand as living costs continue to rise. Additional research from Advance Market Analytics confirms the trend, citing not just increased demand for cheap clothes but the pressing need for a sustainable alternative to recycling clothing materials at its core.

The major popularity of “thrift haul” videos across social media platforms like YouTube and TikTok has also boosted the visibility of vintage clothes shopping and hunting for buried treasures. Teenage TikToker Jacklyn Wells scores millions of views on her thrift haul videos, only to get routinely mass-accused of greed for ratching up the Depop resell prices for her coolest finds and discoveries. Nonetheless, viral clips like Wells’ have helped to embed secondhand shopping apps more generally within online fashion culture. Fashion and beauty magazine Hunger now features a regular list of the hottest items on the re-sale market, with a focus on how to use them to recreate hot runway looks.

As with a lot of consumer and technology trends, the sudden surge of interest in second-hand clothing retailers was only partly organic. According to The Drum, ecommerce apps Vinted, eBay, and Depop have collectively spent around $120 million on advertising throughout the last few years, promoting the recent vintage shopping boom and helping to normalize second-hand shopping. This includes conventional advertising, of course, but also deals with online influencers to post content like “thrift haul” videos, along with shoutouts for where to track down the best finds.

Reselling platforms have naturally responded to the increase in visibility with new features (as well as a predictable hike in transaction fees). Poshmark recently introduced livestreamed “Posh Shows” during which sellers can host auctions or provide deeper insight into their inventory. Depop, meanwhile, has introduced a “Make Offer” option to fully integrate the bartering and negotiation process into the app, rather than forcing buyers and sellers to text or Direct Message one another elsewhere. (The platform formerly had a comments section on product pages, but shut this option down after finding that it led to arguments, and wasn’t particularly helpful in making purchase decisions.)

Now that it’s clear there’s money to be made in online thrift stores, larger and more established brands and retailers are also pushing their way into the space. H&M and Target have both partnered with online thrift store ThredUp on featured collections of previously-worn clothing. A new “curated” resale collection from Tommy Hilfiger – featuring minorly damaged items that were returned to its retail stores – was developed and promoted through a partnership with Depop, which has also teamed with Kellogg’s on a line of Pop-Tarts-inspired wear. J.Crew is even bringing back its classic ‘80s Rollneck Sweater in a nod to the renewed interest in all things vintage.

Still, with any surge of popularity and visibility, there must also come an accompanying backlash. In a sharp editorial this week for Arizona University’s Daily Wildcat, thrift shopping enthusiast Luke Lawson makes the case that sites like Depop are “gentrifying fashion,” stripping communities of local thrift stores that provide a valuable public service, particularly for members of low-income communities. As well, UK tabloids are routinely filled with secondhand shopping horror stories these days, another evidence point as to their increased visibility among British consumers specifically, not to mention the general dangers of buying personal items from strangers you met over the internet. - Lon Harris

Here’s What Happened in LA’s Entertainment Tech World This Week 🍿

How Token and Tixr plan to take on Ticketmaster in L.A.

What is ‘embodied audio?’ And can it help pro sports teams fill their stadiums?

Social Media 📱 

Five takeaways from TikTok’s congressional hearing.

How the TikTok ban could impact LA employees.

With a TikTok ban on the horizon, Zigazoo is working to attract teens.

Clean Tech ♻️

Mullen Automotive pays millions to settle lawsuit with Qiantu.

Why are lithium prices falling?

Relativity Space launches world’s first 3D-printed rocket, but falls short of orbit.

Generative AI apps still have a long way to go before they start swaying elections.

Listen Up 🎧

Behind Her Empire: ComplYant Founder and CEO Shiloh Johnson on helping small businesses.

LA Venture: B Capital’s Howard Morgan on what to look for in potential founders.

Office Hours: VC legend Bill Gurley on startups, venture capital and scaling.

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Without neuromarketing, tech firms’ ads get lost in the noise.

How to startup: mission acquisition.

Virgin Orbit’s swift descent.

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Get caught up on this week's career moves in L.A.'s tech world with our weekly roundup.

And check out our weekly 'Raises' roundup of L.A. startups that raised capital this week.

How to Startup: Mission Acquisition

Spencer Rascoff

Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.

How to Startup: Mission Acquisition

Numbers don’t lie, but often they don’t tell the whole story. If you look at the facts and figures alone, launching a startup seems like a daunting enterprise. It seems like a miracle anyone makes it out the other side.

  • 90% of startups around the world fail.
  • On average, it takes startups 2-3 years to turn a profit. (Venture funded startups take far longer.)
  • Post-seed round, fewer than 10% of startups go on to successfully raise a Series A investment.
  • Less than 1% of startups go public.
  • A startup only has a .00006% chance of becoming a unicorn.

Ouch.

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From The Vault: VC Legend Bill Gurley On Startups, Venture Capital and Scaling

Spencer Rascoff

Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.

Bill Gurley in a blue suit
Bill Gurley

This interview was originally published on December of 2020, and was recorded at the inaugural dot.LA Summit held October 27th & 28th.

One of my longtime favorite episodes of Office Hours was a few years ago when famed venture capitalist Bill Gurley and I talked about marketplace-based companies, how work-from-home will continue to accelerate business opportunities and his thoughts on big tech and antitrust.

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