An ad-supported video streaming service launched by Netflix last month isn't building a big enough audience to satisfy spending from marketing executives, it was reported Thursday. Netflix stock dropped.
The company is falling short of ad-supported viewership guarantees made to advertisers, allowing them to take their money back for ads that have yet to run, according to a report from Digiday.
Netflix launched its ad-supported streaming service in early November. For $7 a month, the new subscription tier costs less than half of Netflix's most basic plan. It includes four to five minutes of ads per hour.
Netflix stock plunged 8.6%, to close at 290.41 on the stock market today, during a broad market selloff.
Netflix remains the world's largest streaming service, with 223 million subscribers but never before has included ads. The company decided to head in a new direction after a tumultuous start to 2022 that saw viewership shrink.
Digiday said Netflix has structured the deals on a so-called "pay for delivery" basis.
Netflix Stock: Falling Short About 20%
The specific shortfall amounts vary by advertiser, but in some cases, Netflix has fallen short by about 20% in terms of audience viewership promised, company executives told Digiday. A Netflix spokesperson declined to comment.
Concerns about advertisers reducing spending plans surfaced on Nov. 2 after Roku reported third-quarter results and warned of deteriorating ad spending.
"Companies are pulling back their ad budgets because they're uncertain if there will be a recession or not," Roku Chief Executive Anthony Wood said in a conference call with analysts at the time. "A lot of Q4 ad campaigns are being canceled."
Roku stock sank 4.6% when it warned of deteriorating ad spending during its third-quarter earnings report.
On Thursday, Roku stock closed down 7.8%. Other industry players hit by the ad spending downturn included AMC Networks, down 7%. Paramount Global collapsed 8.9% and Warner Bros. Discovery plunged 9%.
Netflix stock is down more than 50% so far this year.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
