Netflix Is Ad Free, but It Isn't Brand Free

Tide Pod shout-outs onscreen. Flirtatious exchanges with companies on Twitter. Netflix may not run ads, but it has become a coveted marketing platform.

By Tiffany Hsu

Netflix subscribers like being able to glide through entire seasons of "Stranger Things" and "The Crown" without sitting through commercials for insurance and S.U.V.s with bows on the hood. Subscriptions, rather than advertising, drive its nearly $16 billion in annual revenue, and being commercial-free "remains a deep part of our brand proposition," Netflix said in a statement.

While it is the dominant streaming platform, with 158 million global subscribers, Netflix also has a $12 billion pile of debt. And it is facing competition from deep-pocketed streaming newcomers like the Walt Disney Company and Apple. The research firm eMarketer said this month that Netflix's "days at the top may be numbered," and many analysts and executives wonder if, in order to keep its revenue strong, it will have to embrace ads.

"I don't know why they wouldn't," said Peter Naylor, the head of advertising sales for the streaming platform Hulu.

Even as Netflix resists commercials, it is finding ways to work with brands. Last month, Netflix worked with the sandwich chain Subway to start offering a Green Eggs and Ham Sub (spinach-dyed eggs, sliced ham, guacamole, cheese) tied to the new Netflix series "Green Eggs and Ham," based on the Dr. Seuss book. The sandwich generated a lot of publicity for Netflix in the lifestyle press while also putting the Netflix name in front of the millions of people who buy a Subway sandwich each day.

"We believe we will have a more valuable business in the long term," Netflix said, "by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction."

In another recent cross-promotion, Netflix charged the clothing company Diesel a license fee to make outfits inspired by "La Casa de Papel," one of Netflix's most popular shows. Online ads from Diesel hammered home the connection by showing the Netflix name, mentioning "La Casa de Papel" and featuring characters in the distinctive red jumpsuits worn by the show's protagonists.

Netflix is "actively beefing up its marketing team," according to the research firm Forrester. "They're being more flexible in the types of partnerships they can offer," said Ellie Bamford, an executive at the marketing agency R/GA.

When Netflix worked with Samsung and Aviation American Gin on a commercial last month featuring the actor Ryan Reynolds and his new Netflix film "6 Underground," no money changed hands. For Netflix, such deals are mostly about keeping people aware of the Netflix brand.

Netflix declined to say whether deals with companies would become a larger revenue stream in the future.

But companies have long been eager to go into business with Netflix, even before it scored 34 Golden Globe nominations this month. The platform has something brands crave: a young audience. Its average viewer is 31, part of a group highly sought by companies as younger people avoid broadcast and cable television and are known to hate ads.

"Brands want to be in front of this audience," Ms. Bamford said. "Reaching these unreachables, these cord-cutters who don't want to be fed an ad, is a huge concern."

Major companies flirt with Netflix on social media, and Netflix is flirting back. This month, the company's Twitter account, with seven million followers, participated in a saucy meme about things people say during sex, trading quips about it with the Wendy's Twitter account (3.4 million followers) and Penguin Random House (1.3 million followers). Last spring, Netflix posted a tweet that included a photo of nine cast members from one of its original shows, "Sense8," as they appeared to be celebrating in an Audi convertible, and then had a joking exchange about it with the Audi account (two million followers).

In contrast to its cheery social-media tone, Netflix is "not necessarily the easiest to work with" on promotional partnerships with companies, said Stacy Jones, the chief executive of the entertainment marketing company Hollywood Branded. She described Netflix as "very picky," saying it "wants to be the lead."

"They're in a power position right now," Ms. Jones said. "They know the market, and they're controlling it and keeping it very tight."

Netflix is careful to guard its reputation, asking some of the companies it has worked with to avoid putting its logo on dart boards, paper napkins and doormats. But marketing executives said Netflix was increasingly open to lending its name to outside projects, including joint marketing campaigns and products based on its shows.

With so much content, Netflix has had trouble sustaining attention for some shows, which can come and go in a weekend of binge-watching, never to be mentioned again. The arrangements with the brands are one way it can keep attention focused on a given program. This month, Netflix posted a job listing for someone who would develop products, games and events to "drive meaningful show awareness" and make them "part of the zeitgeist for longer periods of time."

Netflix has a brand partnerships group, led by the executive Barry Smyth, which works with companies to use Netflix's name in promotional campaigns and has recently hired people away from Fox, Lionsgate and other media companies. In a recent job listing for a position in Europe, Netflix said it wanted to "amplify the scope and impact of our marketing campaigns when we work with other brands."

This summer, Netflix's biggest series, "Stranger Things," a supernatural sci-fi show set in the 1980s, struck deals with 75 companies. In one, Netflix teamed up with Baskin Robbins on new ice cream flavors like the chocolate-icing-topped Eleven's Heaven, named after the character Eleven, and Upside Down Pralines, a reference to the alternate dimension in the show, the Upside Down. In another deal, Coca-Cola briefly revived the failed 1985 beverage New Coke, which appeared in "Stranger Things" episodes, adding to its retro atmosphere.

The brands did not pay to appear on the show, but Netflix took a licensing fee for a "Stranger Things" promotion in London designed by the immersive-theater company Secret Cinema, which recreated a mall from the series that sold special cosmetics from Mac and products from Coach. The pop-up mall opened in November, four months after Netflix made the show's third season available to subscribers.

The platform does not need to make money from major companies to benefit from working with them. The idea is to fuel subscriptions by drumming up interest in its shows through alliances with "brands where we feel like their audience will love our content as much as our audience does," Netflix said in a statement.

In a conference call with analysts this year, the Netflix chief executive Reed Hastings said the "Stranger Things" promotions were intended "to get more people excited about 'Stranger Things,' so they join Netflix, they tell their friends about it."

The same logic may extend to product placements. Netflix has typically left such decisions up to individual producers, saying in a statement that "most of the brands that appear in shows and movies are added by creators who believe they add to the authenticity of the story." Netflix added that "instances where those placements are paid are rare and not a business focus for us."

That is a contrast with many of Netflix's rivals, which have actively courted companies with offers to display their products onscreen — even introducing them to showrunners and providing them with script drafts. Hulu, for instance, has a team dedicated to working brands into its shows, with the number of paid arrangements increasing 200 percent from 2018 to 2019, it said. Netflix does not have an equivalent team.

Still, products have appeared in Netflix shows for years (In 2013, a blogger posted a slide show of at least 57 corporate mentions on "House of Cards.") Research last year suggested that more brand-name products appeared on shows tagged as Netflix Originals compared with the ones it streams from other studios.

In the recent post-apocalyptic series "Daybreak," characters comment on the array of products stockpiled in an apartment: Red Bull energy drinks, Settlers of Catan board games, Tide Pods and more. None of the companies paid to be included. But such product placements can be a boon to producers who are looking to have realistic props in a scene without having to pay for them.

In the new Netflix holiday movie "The Knight Before Christmas," a character spends nearly three minutes exploring a Sony television and Amazon's Echo smart speaker. Both products were included free, but their presence set off a flurry of news articles and discussions on social media. Although much of the commentary was mocking, it drew attention to an otherwise standard seasonal film.

Such appearances are part of a long history of corporate cameos, like Ray-Ban in "Top Gun" and Reese's Pieces in "E.T. the Extra-Terrestrial." Mike Myers even joked about product placement in "Wayne's World": "I will not bow to any sponsor," he declared, posing with a slice from Pizza Hut.

Some streaming subscribers have deemed the constant presence of products to be annoying and "a big turnoff." And many companies have tired of the effort that goes into negotiating product placements, wondering whether a few TV commercials and billboards could reach the same number of people with less trouble.

Carrie Drinkwater, the executive director of integrated investments at the Mediahub agency, said her team once tried to fit a client into the plot of the Netflix show "Unbreakable Kimmy Schmidt," only to balk after the production company involved set an "astronomical" price.

"It's a lot of money to integrate," she said, "and it's really hard to do it in an authentic way, and you don't know how much it will resonate."