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- Netflix is using its brand partnerships, like its deals with Coca-Cola and Nike to promote “Stranger Things,” to bring new subscribers to the service, the company said on Wednesday.
- CEO Reed Hastings said Netflix is monetizing these deals today through membership growth, which the company expects to add $5 million in incremental subscription revenue this year.
- Netflix is also being careful about how its partnerships fit in with its originals creatively.
- “In the case of ‘Stranger Things’ 3, you should think about all those product partnerships as a character in the film,” Ted Sarandos, Netflix’s head of content, said.
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Netflix struck high-profile deals with brands like Coca-Cola, Nike, Burger King, and Baskin-Robbins to promote the return of “Stranger Things” this month with flashy marketing efforts like a custom sneaker line and pop-up Scoops Ahoy ice-cream shop reminiscent of the one from the series.
The partnerships withmore than 70 companies around “Stranger Things” signaled an unprecedented level of marketing deals at Netflix. It had Wall Street wondering whether licensing and product partnerships could create a lucrative revenue stream for the internet-video company, which relies entirely on subscriber fees for revenue now.
Netflix said it is already monetizing those brand deals in other ways.
“We’re monetizing it today in more membership growth,” Reed Hastings, CEO, said in the company’s second-quarter earnings interview. “The focus is, get more people excited about ‘Stranger Things’ so they join Netflix, they tell their friends about it.”
Read more:Netflix plunges more than 10% after a huge miss on subscriber growth during Q2
Hastings added: “This year we will add about $5 billion of incremental subscription revenue, which is almost all of gross margin and that’s faster than any entertainment company has grown in the history of the world.”
Netflix isn’t getting distracted
The Netflix boss’ estimates raise a counterpoint to analyst estimates for how much money an ad-supported package could potentially offer the streaming company, if it were to introduce one. Analysts fromNomura estimated in June that Netflix could earn roughly $1 billion more in revenue per year if it launched a free, ad-supported tier, which would be similar to Spotify’s model.
Hastings comments suggest that the company could grow its revenue even more by doubling down on what it is already doing.
The company reiterated in its letter to investors on Wednesday that being ad free is a “deep part of our brand proposition.” It said speculation that it would start selling advertising is “false.”
Read more:Netflix calls speculation that it’s moving into selling advertising ‘false’
Netflix does not want to “get distracted with alternative revenue sources,” because its subscriber engine is what drives revenue, Hastings said in the earnings interview.
“The core focus is, create all these merchandising opportunities, tie-ins, touch points, so that you feel the ‘Stranger Things’ energy so that more people join,” Hastings said. “We do monetize all that. It’s just we’re monetizing it through our giant engine rather than through little sidecar vehicles.”
The push toward efficiency
That said, Netflix has been burning cash to fund the originals that are helping to attract these new subscribers. It has vowed to start improving its free-cash flow deficit in 2020. Netflix’s content-development team is being pushed to be more cost-effective with their investments,The Information reported.
Some of Netflix’s brand deals could also help save money, by partnering up with advertisers on their media buys or negotiating a presence in their retail spaces,as Business Insider reported.
Read more:’Stranger Things’ is back. Here’s how Netflix used brands like Coca-Cola and Baskin-Robbins in a massive marketing push for its return
Netflix did not discuss potential savings from brand deals during earnings, but the company did talk about using technology to make the process of creating trailers more efficient.
“Being an efficient producer is a very good thing to do, obviously, but being an efficient distributor to being an efficient marketer is P&L changing,” Ted Sarandos, chief content officer, said.
Brands are characters, too
Sarandos also suggested that viewers shouldn’t expect to see the same level of brand partnerships displayed around season three of “Stranger Things” for every Netflix series. The company is being careful about how brands fit in with its shows creatively.
“In the case of ‘Stranger Things’ 3, you should think about all those product partnerships as a character in the film,” Ted Sarandos, chief content officer, said. “Remember the show is set in 1985 and it’s set in the heart of when the big summer blockbuster movies were jammed with product placement, and there was really a creative choice when they talked about pitching that season out.”
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