As Disney+ and Netflix look to monetize kids’ content, they need to be wary of being COPPA compliant as well as other challenges, writes Future Today co-founder Vikrant Mathur.
There is a lot of curiosity in the advertising community over the news that two of the heaviest hitters in subscription streaming services – Netflix and Disney+ – will be launching ad-supported tiers. It raises a lot of questions about what an ad-supported model will look and feel like. And because both Netflix and Disney+ have a lot of content for kids, they will have to stay compliant with COPPA (Children’s Online Privacy Protection Act). COPPA is serious business, imposing limits on what data businesses can collect from children under 13, as well as how it can be used for targeting advertisements to kids and families. Fines for violations can push into millions of dollars.
First off: Netflix and Disney+ won’t approach COPPA-compliant advertising in the same way. Disney has a history here – its ad-supported digital and linear properties have been navigating COPPA since the law was enacted in 2000. Kids-themed content has been a core part of its business and brand identity from the very beginning. In addition, it has the sales team, the tech stack and the relationships with relevant brands. For Netflix, while content for kids isn’t foundational to the business, it is extremely important for limiting subscriber churn. Unlike Disney+, households don’t subscribe to Netflix purely for its kids and family content, but they stay subscribed because there’s something for the whole household. Netflix has tapped Microsoft as its adtech partner – providing a ready-made adtech stack, and fulfilling co-chief executive Reed Hastings’s wish for a third party to take care of its adtech needs.
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Disney’s tried-and-true content sponsorship approach
As linear viewership declines, Disney is looking at the Disney+ service as the company’s transition into this new world of content consumption. In many international markets, it has shut down its linear channels to focus on Disney+. As a result, the company would be looking at the new service to make up for lost linear revenue – both carriage fees and advertising.
While Disney+ won’t be making money through carriage fees, subscriptions for the ad-supported tier will play a similar role in its overall revenue strategy. That mix would relieve some pressure, allowing Disney+ to focus first on an ad strategy for content where COPPA is less of a concern – categories such as Marvel, Star Wars and National Geographic content. That content still benefits from Disney’s reputation for brand safety, and the company could benefit from higher CPMs in those categories as the inventory there is considered scarce.
In linear, the majority of The Disney Channel’s programming is sponsored, in lieu of running traditional ad spots. It is entirely possible that Disney+ will be able to carry over its sponsorship model for kids’ content in broadcast, without worrying about COPPA compliance in pre-roll or ad pods.
Overall, Disney+ will be thinking about mimicking its legacy business where subscriptions replace carriage fee, the vast majority of advertising revenue comes from content made for adults, and kids’ programming carries a very light ad load that is mostly based on sponsorships.
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The Netflix ‘kids and family’ content approach
Netflix, by contrast, will be coming from a very different direction in terms of monetization of its ‘kids and family’ content. Unlike Disney, Netflix doesn’t have a legacy revenue stream to preserve, but it will perhaps reach the same conclusion: an ad strategy that focuses on a sponsorships model as opposed to pre-rolls.
Netflix has a massive library in the general entertainment category, so it will make sense for Netflix and Microsoft to focus on adult audiences where it will still have a lot of inventory to sell and not have to worry about COPPA. There are technical issues to be figured out, such as where to insert ad breaks for mid-rolls or how to align brand-safe content with relevant advertising, but those are relatively straightforward to address.
From a ‘kids and family’ perspective, Netflix relies on the category as a subscriber retention tool, so its need to monetize that content is limited. As a result, Netflix may choose, for the foreseeable future, to not monetize its ‘kids and family’ content at all. But if it does, it may rely on the Microsoft sales team to sell sponsorships, custom ad units and integrations, similar to Disney. The designated human sales team, along with customizable tech tools, will be a real benefit to Netflix’s need to generate revenue but still stay compliant with COPPA.
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Between the two platforms, right out of the gate Disney+ seems more prepared to monetize its kids’ content in a COPPA-compliant way than Netflix. But both platforms are facing similar challenges in entering AVOD, and both will likely choose to focus first on monetizing content outside of COPPA’s realm. Sure, that means both will be leaving money on the table from its kids’ content. But that’s less of a sacrifice than ponying up for COPPA fines and dealing with reputational damage among advertisers – which no company can afford.
Vikrant Mathur is co-founder of Future Today.