MNTN CEO Mark Douglas on Netflix 3Q, Ad Strategy

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00:00There's been a big focus here on ad revenue. That, of course, is a key line item for the

00:05streaming giant. And when it comes to overall third quarter revenue, it came in just shy of

00:10estimates. It didn't specifically break out ad revenue, I believe, but it did say it's on track

00:15to more than double in 2025. But, Mark, as I understand it, that's off of a fairly low base.

00:21Yeah. So what's happened is, as Netflix started out, what they wanted first was the highest

00:27pricing in television. And they essentially did not get it. It got rejected by a lot of advertisers

00:33who said, look, I'm not paying Super Bowl prices for everyday programming on Netflix.

00:38They adjusted. They made changes in their team and the ad revenue that reduced the friction.

00:44But they are at a point where they're still doing the ad sales kind of old school style,

00:49you know, direct deals with advertisers. The new school is it's all programmatic. It's all

00:55electronic. It's like doing trading on Wall Street by hand versus having, you know,

01:00electronic, fully electronic trading. They are building their own ad stack that, you know,

01:05Netflix ads. It's not done yet. It's not scaled yet. And until it does, their ad revenue is going

01:12to grow, but it's going to, you know, be held back because most of the market wants fully electronic

01:18ad buying at this point.

01:20And when you think about the business model of Netflix, even if, you know, some of what you're

01:24talking about when it comes to ad revenue is materialized, if it isn't held back anymore.

01:30I mean, what do you see as the future of this company when it comes to balancing

01:33subscriptions versus ad revenue? What is going to be the bigger driver here?

01:38Well, I think ad revenue, I think subscriptions is a straight line grower. I mean, there's no

01:43current reason to see it slowing down because they made the leap years ago from just being U.S.

01:49to going worldwide. And they were one of the, if not the first media company to really do that at

01:54scale. The ad revenue, they're signing up users in previous quarters where they were breaking out

01:59user growth. They were saying that more than half of the new users were signing up for ads, but they're

02:05not serving ads at the rate that people are signing up, which is bad for this quarter, but really good

02:11for future quarters. It's almost like a backlog of potential revenue that once they really scale,

02:17the digital advertising platform they're building, that's going to produce some really, really strong,

02:22it should produce some really, really strong quarters. But right now, it's, you know, it's not quite there yet.

02:28Any potential risk that you see right now, Mark, in them not being able to fulfill on that, to execute on that?

02:36Not really. I mean, I think the people who are saying paying for ad free and not seeing that many ads

02:41probably are, you know, like, like, pleased, I guess you would say. So in the ad business, I don't want

02:49you to be pleased not to see them. But they, I don't really see any risk. And I think if they, like I said,

02:55it's a backlog of, you know, revenue, it's kind of, it's kind of like the passwords where they're

03:02allowing password sharing, and then they started to restrict the password sharing, and it just grew

03:07their revenue. The same will happen. But in this case, it'll grow their advertising revenue, which

03:12also the thing about that, that almost, it's so profitable, like amount, gross margins on ad

03:19revenue are like 80%. I mean, for Netflix, it'll probably be higher than that. Oh, wow. Do you think

03:25that they will see better success with some of those ad sales on the live programming that they've been

03:30experimenting with, or on the traditional, you know, pre-recorded, scripted stuff?

03:34I think the, the, the, there's insatiable demand for live program, ads on live programming right

03:40now, period, just across the industry. And that's something that's relatively new, like I'm talking

03:46this year. So yes, but, and they can charge very premium prices for it. But I, but you know,

03:52to really scale it, you have to scale it across the entire catalog, not just cherry picking out certain

03:57shows. Well, Mark, following up on that, I want to return to the point that you made that,

04:02you know, when it comes to advertising on Netflix, you said that a lot of these advertisers,

04:06advertisers don't want to pay Superbowl prices to advertise on a streaming platform. And,

04:12you know, I wonder why, is that just a Netflix issue? Is that industry wide? And I mean,

04:16does that perception ever change? Well, the thing is that makes you, you, the only people that are

04:22going to pay that are some large global brands who, for, you know, for reasons they can justify,

04:29you know, want to, that's what they want. But again, that, that gets you to a 2 billion in revenue,

04:37whatever. It doesn't get you to 20 billion. If it, if it, you know, if you really want to scale,

04:43you have to scale the audience, the overall audience at reasonable prices that work across

04:48large global brands, small brands, medium size, but you got to scale broadly. Like they did their

04:54customer base. You have to scale the advertiser base. And that doesn't occur at Superbowl prices.

04:58zw Rustin Frustugge, etc.

05:005.

05:01So now, we have to,

05:04please reach out.

05:06So,

05:08we're seeing this live.

05:12Let's see.

05:14So,

05:16we're…

05:19now,

05:22we're gonna be

05:24up.

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