Barron's: Ads Coming to Streaming/Winners/Lo

Barron’s headline: Netflix and Disney+ Are About to Get Ads. What It Means for Streaming Stocks.

By Jack HoughFollow
Sept. 16, 2022 6:53 pm ET

Named in the article: $NFLX $DIS $TTD $MSFT $META $GOOGL $ROKU $WBD

“Connected television is what will bring down the walls of walled gardens,” says Jeff Green, founder and CEO of Trade Desk (TTD), which competes with Alphabet as an ad-buying platform and has partnered with Disney in streaming advertising. He means that streaming can match the targeting power of online search and social media while making the emotional connection of video. “A banner ad has never made you cry,” he says.

Trade Desk is poised to be a winner as more advertising dollars flow to streaming.

Microsoft (MSFT), a rising ad player, should benefit, as well. Roku (ROKU) could have better odds than its collapsed stock price suggests. Walt Disney (DIS) and Warner Bros. Discovery (WBD) will benefit from rich content engines. Netflix, meanwhile, faces plenty of risk. And across the industry, more consolidation appears inevitable.

I had no idea Paramount and Fox own PlutoTV and Tubi, respectively. Both of these are “free” channels on my Roku interface. I watch ads, X them out when I’ve watched the time segmented for a “view” to advertisers, but, the ads are short and now you’re notified when ads are about to happen on certain “free” channels. (I don’t know how advertisers will buy ads knowing the viewer is warned when the ads are about to surface.)

Netflix just moved up the launch of its ad-supported service to November to beat Disney+ on Dec. 8. That means it will want to lock in advertisers by the end of this month. It’s expected to start at an “ad load” of four minutes per content hour.

Jessica Reif Ehrlich, a media analyst at BofA, predicts what she calls silent price hikes in the form of a quick rise in ads for each hour. “There’s no way it’s going to stay at three, four, five minutes,” she says. “Hopefully it won’t be what we see on linear, which is unbearable.”

The TV business is packed with jargon. Here’s a quick glossary for investors. Linear means that movies and shows run at scheduled times, and can refer to either old-fashioned broadcast and cable, or to FAST, which stands for free ad-supported streaming television. FAST services skimp on content costs and pack in the ads, but users can’t beat the price. Paramount Global (PARA) owns the FAST service Pluto TV; Comcast (CMCSA) has Xumo; and Fox (FOX) has Tubi.

This does not bode well for $DKNG and other sports betting stocks:

This past week, activist investor Daniel Loeb backed off his demand that Disney sell ESPN, tweeting about a “better understanding” of its potential. Loeb had argued that ESPN would be worth more to a company that would pursue gambling. Disney CEO Bob Chapek, asked at a recent company event whether ESPN is developing a gambling app, said, “We’re working very hard on that.”

Three disparate paragraphs about $TTD:

One answer is called a data clean room, or software that allows collaboration without oversharing. Trade Desk is providing a data clean room for Disney. Microsoft, which just bought a programmatic advertising company called Xandr from AT&T , is believed to be doing something similar for Netflix. Microsoft declined to comment.


Nollen is particularly bullish on Trade Desk. “Because they’re neutral, because they’ve got great scale, great relationships, great ability to tie very targeted ads into all of these services, we think they’re going to be one of the winners in this transition,” he says.

At Trade Desk, CEO Green is eyeing a global ad budget approaching $1 trillion. “I want as much of that as possible,” he says. And although his buying platform plays in websites, apps, podcasts, and more, he makes no secret of where he thinks the money is headed. “Connected television,” he says, “is quickly becoming the most effective way to advertise on the planet at scale.”