Shares of streaming TV company Netflix (NFLX 1.61%) fell on Tuesday, even as broader indices notched a gain. The streaming TV service specialist's shares declined more than 3% by the time the market closed. The pullback was likely primarily driven by a report from The Information saying Netflix's recent move to replace its ad sales chief with executive Amy Reinhard was part of the company's efforts to drive more growth in its nascent ad business following a period of worse-than-expected performance. Through June of this year, ad sales and ad-supported subscriber additions were both only half of the company's internal expectations, according to "people with knowledge of the matter."
Even though Netflix's early start in advertising may have been underwhelming, the company isn't likely losing any sleep over it -- and investors shouldn't either. Management has emphasized on several occasions, including during a September meeting with analysts, that it is still in the "crawl" phase of the crawl-walk-run rollout of its ads business. Things aren't expected to go right during a crawl phase. It's where experimentation occurs and strategy is formulated. Investors, therefore, can forgive the company for stumbling early on; even the best-case scenario during a crawl phase would likely have been borderline immaterial to Netflix's business.
But the stakes are much higher in the walk and run phases. Fortunately for Netflix, there is one relatively easy way it could get things rolling quite quickly: partner with data-driven ad-buying platform The Trade Desk (TTD 2.04%). Doing so would almost certainly unlock a massive stream of incremental demand and set the company up nicely for an increasingly data-driven advertising marketplace.
The case for the open internet
In the digital advertising ecosystem, The Trade Desk's name has become synonymous with the open internet, or the advertising landscape across the internet and connected TV in which ads can be purchased by means other than a company's native ad-buying tech stack. In other words, the open internet refers to all the digital advertising real estate available for purchase beyond the "walled gardens," or the large tech players like Alphabet and Meta Platforms who largely only sell ads through their own ad-buying technology. If Netflix were to open up its platform to The Trade Desk, it would show advertisers how serious it is about letting marketers come to the table objectively and intelligently.
Buying ads across the open internet is The Trade Desk's specialty -- and its clients are eating it up; the company has been gaining significant market share this year and some brands and marketing agencies recently committed to spending billions of dollars on the open internet via The Trade Desk's ad-buying platform.
The open internet is where the money is going, and it's time for Netflix to get out in front of this opportunity. As famed hockey player Wayne Gretzky said, "I skate to where the puck is going to be, not where it has been."
The case for programmatic
Of course, this is about more than betting on the open internet. It's also about programmatic advertising.
Programmatic advertising, or the ability to bid for ads in real-time using automated software, is catching on like wildfire in the streaming TV space. Walt Disney (DIS 0.34%), for instance, said that of the 5,000 advertisers across its streaming services as of its fiscal second quarter, one-third were already buying programmatically. To capitalize on the opportunity, Disney CEO Bob Iger said the company is "focused on the growth opportunity in programmatic advertising, and we are well positioned to scale as the market improves and audiences continue to grow."
Partnering with The Trade Desk would mean Netflix is making some of its inventory available programmatically, giving the company access to a fast-growing market advertisers are embracing in droves.
Netflix, give The Trade Desk a call
It won't be until Netflix embraces the open internet and programmatic advertising that the company's ad business really starts to take off and morph into something significant for shareholders.
Looking for the big (and smart) money, Netflix? Give The Trade Desk a call.