Month: January 2022

The key details:

• 221.8 million subscribers, up 9% year over year
• $7.7 billion in revenue, up 16% year over year
• Added 8.3 million new subscribers in Q4, falling just shy of the company’s projection of 8.5 million new subscribers in the period
• Added 1.2 million subscribers in the U.S. and Canada

Growth vs. grown

The story of Netflix’s business in Q4 mirrors that of streaming at large in 2021. After the pandemic-induced streaming surge of 2020, the streaming subscription market settled down in 2021. 

Case in point: Netflix’s subscriber base grew by 22% year over year in Q4 2020 and then by 9% year over year in Q4 2021. Also Netflix added 230,000 fewer subscribers in Q4 2021 than it did in Q4 2020. And then there’s the fact that Netflix missed its own Q4 subscriber growth estimate by 220,000 subscribers.

That’s the glass half-empty perspective. The glass half-full perspective is that Netflix has been able to defend, and even build on, its position as the dominant streaming service. 

For starters, Netflix’s subscriber base keeps growing quarter over quarter, and its 4% sequential growth in Q4 2021 matched that of Q4 2020. In other words, the company has been able to combat subscriber churn despite receiving a flood of competition from the likes of Disney’s Disney+ and WarnerMedia’s HBO Max and despite raising the price of its subscriptions (which it is continuing to do).

“While this added competition may be affecting our marginal growth some, we continue to grow in every country and region in which these new streaming alternatives have launched,” Netflix said in a letter to shareholders published on Jan. 20.

Also, while more than 90% of the subscribers Netflix added in 2021 were outside the U.S. and Canada, the company is once again growing in its most mature market. In fact, Netflix added 300,000 more subscribers in the U.S. and Canada in Q4 2021 than in Q4 2020.

Growing pains ahead

So while things seem to be going better for Netflix, the company may run into a rough patch in the first half of 2022. 

First, Netflix has once again hiked its subscription prices. The company also raised its prices last year, which correlated with slowing subscriber growth and even shrinkage in the U.S. and Canada. Moreover, the company may not give subscribers as much bang for their bucks until March, which is why Netflix is projecting to add 1.5 million fewer subscribers in Q1 2022 than in Q1 2021.

“For Q1’22, we forecast paid net adds of 2.5m vs. 4.0m in the year ago quarter. Our guidance reflects a more back-end weighted content slate in Q1’22 (for example, “Bridgerton” S2 and our new original film “The Adam Project” will both be launching in March,” the company wrote in its letter to shareholders.

Furthermore, for as much as Netflix’s growth is speeding up again in some respects, it remains — and is projected to stay — below its pre-pandemic pace. As this chart from its shareholder letter makes clear, Netflix is still growing but not to the extent it has already grown.

But for now, in its Facebook Ads Benchmark Report, Tinuiti said its clients increased their Meta ad spend 32 percent year over year in fourth quarter 2021 — and that represented only a slight decrease from spend in third quarter.

“They’re fairly unique in terms of their ability to reach new consumers at scale with products to put new [advertisers] in front of fresh consumer faces,” said Andy Taylor, vp of research for the agency. “Facebook itself is obviously having to make adjustments on its end in terms of how audiences work in order to better keep the targeting targeted. But it just goes back to the fact that it’s just a very powerful marketing opportunity. And so until users really start fleeing the platform in any kind of meaningful degree, it’s going to continue to be a big part of how brands market themselves.”

Taylor pointed out that any loss of users by Facebook can be made up by sibling Instagram’s growth. “Even if people were to flee Facebook, iInstagram wouldn’t take as big a hit,” he said. “And Instagram in particular is finding new inventory sources all the time as well, to help boost growth on that platform.”

One reason for that is, Meta/Facebook has made it easy for marketers to get what they need by reverse-engineering the normal way marketers and agencies buy media, said Konrad Feldman, CEO of data-leaning ad-tech firm Quantcast.

“If you think about the way Facebook operates for advertisers, they made it very easy for them — unlike most DSPs, which make the user specify all the levers they need to pull and then keep track of it all, and change as the environment changes which is really complex,” said Feldman. “Facebook Ads Manager asks the marketer: tell me your objective (you want to sell more product), and give me your constraints (you can’t deliver to certain countries, for example), and the machine learning works it out, so you can get campaigns set up more quickly.” 

Taylor also noted that Apple’s ATT privacy moves had only a minimal impact on the social giant’s ad sales efforts. “Their targeting is still fairly powerful, despite the issues with Apple ATT limiting how well you can retarget individuals,” he said.

Although Facebook’s desktop audience share dropped at the end of 2021, mobile usage picked up accordingly, the report also cited. 

Relating to that mobile usage, Tinuiti’s report addressed how the effect of Apple ATT limiting in-app advertising has led to an increased demand for Android users. “There is now relatively more demand for those individuals who can still be targeted and measured using mobile IDs,” read the report, which also noted that iOS spend share declined over the course of 2021.

“iOS users are still seeing ads … but what’s happened is that the way that we could target those individuals has changed,” said Taylor. “That’s putting a lot of demand on those auctions, particularly within the Android space, and you’re seeing the CPM scale up as a result. There’s definitely a gap opened up between Android and iPhone that didn’t used to exist.

These in-game studios essentially act as metaversal agencies, designing and implementing brands’ virtual activations much as a traditional agency would in a physical space. This doesn’t mean traditional agencies have been made obsolete by the metaverse — Atlas Creative’s LG activation was designed by the electronics company’s in-house agency, for example — but activations such as NASCAR’s recent foray into Roblox have been designed and implemented entirely by developers, without agencies’ help. NASCAR provided the intellectual property and visual assets, and the developer studio Badimo implemented them into its Roblox game, Jailbreak, and that was it — no need for an agency to get involved.

The emergence of these in-game studios, and their ensuing brand partnerships, has created competition for traditional agencies. “I don’t think agencies can ignore this new space,” said Charles Hambro, CEO of esports and gaming consultancy and data platform GEEIQ. “You know, we went from print advertising in the 90s, and then suddenly social media came up, and everyone went, ‘oh my god, we need a social media strategy.’ A lot of the brands and agencies that I speak with, they refer back to that and say this feels like when we went from print to social media. Suddenly, we had to learn this whole new world.”

To get more comfortable in this new environment, some agencies are getting involved in experimental projects to stake their claim to the metaverse. Companies such as agency holding group S4 Capital have held board meetings in Horizon Workrooms; in December, Mediahub moved into the metaverse by establishing both a virtual office in the metaverse platform Decentraland and a dedicated channel on the messaging service Discord.

“Our use of Decentraland is less of an attempt at mirroring an office space; it’s more that we have this starting point with one of the major platforms,” said Simeon Edmunds, svp and creative director at Mediahub. “More than being a proxy office, it’s a starting point for conversations with clients. Any conversation about the metaverse can go in any number of directions — it’s much easier to say, ‘hey, if you click on this link, you can drop in and W-A-S-D yourself around.’”

Initiatives such as Mediahub’s virtual office are more of a toe-dipping than a leap of faith into the metaverse. Some agencies are investing in more practical metaverse knowledge as well. In December, dentsu agency Isobar Italy designed its own industry-inspired Roblox game, Pitch Blitz, to demonstrate its in-house metaverse design capabilities. “We used the Roblox editor,” said Isobar CEO Massimiliano Chiesa. “But since we have 3D guys, that let us improve the editor, in terms of polygons and all that stuff.”

Once brands become more comfortable operating in the metaverse, some observers anticipate that traditional agencies and the newly formed in-metaverse developer firms will reach an equilibrium that allows both types of businesses to benefit from the rise of virtual space. “Both media and creative [agencies] say they do everything,” said Matt Maher, whose creative agency M7 Innovations is focused on future technologies such as VR and AR. “The reality is, it’s not real because a creative agency just can’t take the overhead of 25 visual effects artists just because one client might want to move into 3D modeling.”

Indeed, as the metaverse takes shape, traditional agencies are unlikely to succeed by muscling out the in-game developers that have organically arisen in the space. Instead, Edmunds said, metaverse-minded agencies should simply continue to do what they do best: connect brands with creators and their audiences. Though studios such as Atlas Creative are beginning to forge their own relationships with brands, agencies have long-standing brand relationships and can help brands with cross-platform campaigns, not just platform-specific activations. “Those developers — the thing that they don’t have, that we as an agency do, is the long-term relationship, not just with the clients, but with that brand, and understanding what makes strategic sense for them,” Edmunds said. “So, yes, from a pure production standpoint, you can have anybody build anything. But having somebody who’s been through three years of presenting things and knows how all the key stakeholders are going to respond to something — that is a level of knowledge that still needs to be in place.”

Whether we end up calling it the metaverse or not, it’s clear that consumers and the brands that serve them are increasingly spending their time (and money) inside virtual space. Agencies that missed the boat on past innovations, such as social media and gaming, will look to assert their authority in the metaverse during these early days. “If you want to be relevant, if you want to be part of this change, you need to do this,” said Fikret Fetahovic, CPO of the Publicis Groupe agency Boomerang. “For agencies to survive in the future, it is essential to be able to adapt; it should be in the DNA of a modern agency.”

“We had always planned on a hybrid festival,” said Mary Sadeghy, head of corporate partnerships at Sundance Institute. “We had all hoped and looked forward to gathering in-person in Utah this year but had planned to activate online [as well so] making the shift [to fully virtual] was relatively seamless.”

Last year’s virtual festival had “a total audience views of more than 600,000 — 2.7 times (168%) more than in 2020,” according to Sundance figures. The non-profit added new sponsors including DIRECTV, XRM Media, Aflac, Michelob ULTRA Pure Gold, Rabbit Hole Bourbon & Rye and Shadow and Act to its roster of brand partners this year. 

Brand sponsors’ activities will once again appear on the virtual Main Street — where brand sponsors typically show up in Park City — with additional content like panels and Q&As with filmmakers, actors and creators for attendees to watch as well as trivia nights and invite-only parties.

Acura is sending out “Watch Party Kits” to some attendees with snacks and swag to make the virtual festival more like the in-person experience. The carmaker will also work with influencers to deliver some kits in-person with Acura vehicles as well as send some kits to current Acura owners, according to Meliza Humphrey, senior manager of Acura Marketing.

“We’ve had to pivot a lot of events to go virtually,” said Humphrey when asked about making the pivot to virtual this year for Sundance. “It can be done. We’ve realized we can reach a totally different audience, many more people by going virtual.” 

Marketers and industry execs say that planning for hybrid events will be the norm this year. “Given the great unknowns through this next phase of Covid, marketers have to continue to plan for virtual-first,” said Mack McKelvey, founder and CEO of SalientMG. “There’s no concrete date for in-person to resume.” 

McKelvey continued: “We’ve had two years to develop strategies to maximize virtual events and we should continue to embrace and iterate on those strategies to maximize the events as much as possible.”