Blueprint 21: Sell the Ad or Lose the Show

Reid Mercer: Pum-pum. Grant: Okay, welcome back to Blueprint. I'm Reid Mercer, and we are coming at you right in the middle of Upfronts Week in New York City. Speaker 3: That's right, I'm Grant, and Reid Mercer, this is one of those episodes where the numbers actually tell a wilder story than a celebrity spectacle out front. Grant: Right? Like Oprah walks onto a stage at the Beacon Theatre to hype Amazon and everyone's taking photos, but the real story is what those ad commitments mean for what you're Speaker 4: putting on the line. Grant: What gets greenlit next year. Speaker 3: Eight companies, three days, Manhattan theaters packed with ad buyers and celebrities, and underneath it all of it, a forward commitment market that literally decides which shows exist. Grant: So, get this. Netflix is projecting $3 billion in ad revenue for 2026, Speaker 3: Wow. Grant: doubling from last year, and that's still only around 6% of their total revenue. Speaker 3: Right, right. So the number sounds big until you zoom out. Zoom out. We're going to dig into whether that math actually closes and what it means for the shows they commission. Grant: And then we get into Disney because their content strategy argument is genuinely the one Grant and I do not agree on. Speaker 3: Look, $24 billion in content spending sounds like confidence. Grant: I read it as triage and I read it as discipline. We'll let you decide. Speaker 3: We will hash that out. Plus, we're looking at how Amazon's upfront pitch at the Beacon stacks up against NBCU at Radio City, and what it signals about where ad buying power is actually concentrating. Oh, you're going to love this part. Tubing's flywheel economics sneak into the conversation too, and the numbers there are not what you'd expect. All right, let's get into it. Industry context, All right, let's get into it. Industry context, first segment right now. Grant: Okay, so get this: Eight companies, three days, every major theater in Manhattan, that was Upfronts week, May eleventh through thirteenth. Speaker 3: And I mean theaters literally. NBCU kicked off at Radio City. Amazon had the Beacon. YouTube closed at Lincoln Center. You don't pick those venues by accident. They're signals about capital commitment. Grant: And Disney? Disney brought Robert Downey, Jr, Olivia Rodrigo closing with a three song set, Jimmy Kimmel roasting his own bosses, Arnold Schwarzenegger was somewhere in the mix. Speaker 3: Of course he was. Grant: It's a full production, a spectacle. Speaker 3: Right. And here's what nobody mentions when they're gushing about Olivia Rodrigo at the Javits Center. Grant: What's that? Speaker 3: None of this is actually about the shows. It's a forward commitment market. I've read these structures a hundred times in finance. Advertisers lock in their budgets months before a single frame gets shot. Grant: So the upfront is like a futures market for television? Speaker 3: Exactly. You commit now, you get the premium inventory. Miss the window, you're buying scatter at whatever the price the market gives you. Grant: And that means the money that gets pledged this week shapes what actually gets greenlit. Speaker 3: Unseen, before a single frame is shot, a show with strong advertiser interest has a different development trajectory than one without it. Grant: So Seth Meyers roasting NBCU executives is essentially collateral for a financial transaction. Speaker 3: The most expensive comedy set in television. Grant: Plot twist, right? And Deadline reported the overall upfront market pulled in $17.8 billion last year, down from $18.4 billion the year before. Speaker 3: Yep, traditional TV shrinking. But here's what actually shifted according to Media Play News. Grant: Wow. Speaker 3: This year, the presentations led with ad technology and targeting before they even touched content slates. That tells you what buyers actually care about now. Grant: That's a real shift. Used to be all about the sizzle reel. Speaker 3: Because the buyers stopped caring about the sizzle reel first, they want to know, can you measure it, can you target it, can you prove it worked? Grant: So the show doesn't just have to be good, it has to be good for the advertiser's spreadsheet. Speaker 3: Now you're getting it. Grant: Which raises the obvious question, if ad commitments are now shaping what gets made, who's actually winning that game right now, and what does their ad business look like? So here's the math that keeps me up at night. Netflix is targeting $3 billion in ad revenue this year, doubling from $1.5 billion in 2023. Speaker 3: Wow. Grant: But against a $50 to $51 billion revenue guide, that's still only about 6% of total revenue. 6%! Right. Speaker 3: 6% from a company with hundreds of millions of subscribers. That's not a business yet. That's a proof of concept with a very expensive content library attached. Grant: And Co-CEO Greg Peters basically admitted it on the... quoted on the Q4 call, he said there's still a gap between ad tier ARPU and standard subscriber ARPU, Speaker 3: Uh huh. Grant: framed it as an opportunity, not a problem. Speaker 3: Which is a very Greg Peters thing to say. Grant: Look, the framing isn't wrong. Over 60% of new signups in eligible markets are choosing the ad-supported tier, according to the Q1 shareholder letter. That's a massive audience funnel. The question is when the revenue catches up to the eyeballs. Speaker 3: And they're making real moves on the supply side. Adweek reported Netflix now works with over 4,000 advertisers, up 70% year over year. Grant: Wow. Speaker 3: They've also ditched a Microsoft dependency and built their own. With their own ad tech stack, which means full control over targeting, formats, and measurement. Grant: That Microsoft exit matters more than people realize. The old setup had real limitations on targeting. Advertisers were hesitant. Now Netflix owns the stack, they can actually iterate. And programmatic is growing fast. Co-CEO Greg Peters said on the earnings call it's on its way to accounting for more than 50% of non-live ad inventory. Touring. Speaker 3: That's the infrastructure you need before you can start closing the ARPU gap. So, they have the audience, they're building the plumbing, and the advertiser count is growing. What's the ceiling? Long term, ALM Corp noted Netflix has floated a $9 billion ad revenue target by 2030. $3 billion this year, $9 billion in four years. Hmm, that's a big jump. $3 to $9 is not a straight line. Now, it requires the ARPU gap to close. It requires... Our field rates decline and it requires the content slate to stay premium enough that advertisers actually want to be there, which brings us to the content decisions themselves. Because here's the thing, if ad commitments are flowing into upfronts before shows exist and Netflix needs premium brand-safe content to close that ARPU gap, then the content commissioning filter just changed and Disney's been living that reality much longer than Netflix. Reid Mercer: Netflix has. Grant: Now flip that on its head. Disney's playing a completely different game. Their CFO Hugh Johnston told investors the company was done, his word, overproducing original content. Speaker 3: Right, and the numbers back them up. According to Disney's Q1 2026 earnings, SVOD operating income hit $450 million, up seventy-two percent year over year. The contraction strategy is working financially. Grant: Seventy-two percent. That is a number! Speaker 3: It is. But here's where I push back. Variety reported Disney's $24 billion content budget for fiscal 2026 splits roughly half to sports, half to entertainment. Grant: So you've got maybe $12 billion left for actual shows and movies. Speaker 3: And that $12 billion has to run through the franchise filter. Marvel, Star Wars. Zootopia 2 cost a billion at the box office, which proves the model works. That's Reid's argument, right? That is my argument. Studios were burning through cash on originals nobody watched. Johnston basically admitted that. The discipline is overdue. Grant: Okay, okay, I'm on both sides a little bit. The margin discipline, fine. But here's the thing. When half your budget goes to NBA rights and ESPN deals. and the other half is sequels and superhero movies, the mid budget original is not temporarily on pause, it's structurally dead. Speaker 3: Hmm, that's a strong claim. I stand by it. Name me a mid budget non franchise Disney Plus original greenlit in the last eighteen months that wasn't tied to an existing IP. Grant: I mean, I'm thinking. Speaker 3: Take your time. Grant: Look, Disney hit a 10% SVOD operating margin target in Q2, first time ever crossing double digits. You can't argue with that result. Speaker 3: I'm not arguing with the result. I'm arguing with what you sacrifice to get there. Upfront ad commitments lock the content slate towards advertiser-safe franchises. Brands want predictability. They want IP audiences already trust. So the upfront market becomes a de facto commissioning filter. That's exactly it. And Disney figured that out first. Now flip it to Amazon and NBCU, Grant: Yeah. Speaker 3: who showed up to upfront week with completely different pitches aimed at the same ad dollars. Two paths, same destination. And that's worth a closer look. Amazon's running a hybrid model. Grant: Ad supported by default since January 2024, leaning on first-party shopping data that no pure-play media company can touch. Switching gears here. Same day, same street, two very different rooms. Amazon at the Beacon Theatre, NBCU at Radio City Music Hall, both pitching advertisers on May 11th. Speaker 3: And I mean, the contrast is almost too clean. Amazon's whole case, first-party shopping data. Buy through our DSP, we know what your customers searched, browsed, and bought. No media company on the planet can say that. Grant: Right. And according to the Amazon Ads announcement, the upfront spotlighted authenticated reach across Prime Video, Twitch, Wondery, Amazon Music. It's not a streaming pitch. It's a data infrastructure pitch dressed up. Stop in celebrity appearances. Speaker 3: Which, to be fair, is what all upfronts are, but Amazon's data moat is real, and here's where it gets interesting for the broader ad ecosystem. Netflix inventory is now buyable through Amazon DSP. Starting in Q2 2026 in the U.S., advertisers can apply Amazon audiences directly to Netflix campaigns. Grant: So Amazon is essentially becoming an ad exchange for. It's for premium streaming. Speaker 3: Yeah, and that consolidates buying power in Amazon's hands in a way that disadvantages anyone without a comparable data layer. NBCU's pitch, across the street, was built on something completely different. Grant: Sports, live events, reach. Speaker 3: Exactly. Peacock's got 8,400 hours of live sports in 2026. Super Bowl, Winter Olympics, FIFA World Cup. That trifecta is a reach argument, not a precision targeting argument. Grant: Nodding, NBCU's Mark Marshall basically said per Variety, legacy is the superpower. One hundred years of NBC, the Sunday sports strategy across football, basketball and baseball, that's appointment viewing at a scale Amazon can't replicate yet. Speaker 3: Hmm. I'm on both sides here, honestly. Amazon wins on precision. NBCU wins on scale moments and different advertisers need different things. Grant: So get this, Nielsen data shows 81.1% of streaming viewing among adults 18 to 49 happens on ad-supported tiers. Every platform in that room was selling its AVOD story first. Speaker 3: AVOD story first, content slate second. That's the flip from five years ago, and the Amazon DSP Netflix deal means even Even pure play streamers are folding into Amazon's ad infrastructure to stay competitive. Grant: Exactly why the next piece of this matter is because there's a third player in the room that nobody flew in celebrities for. Tubi: No upfront stage, no Vin Diesel, just a hundred million monthly active users, and for the first time actual profitability. Speaker 3: Vin Diesel would have helped, but yeah, the AVOD play economics are where you really see how advertiser demand shapes content at the show level. Grant: And that's where CPM math stops being abstract and starts being a commissioning decision. So 2B, 100 million monthly active users, 1 billion streaming hours a month, hit profitability in 2025. Speaker 3: Wow. Grant: CEO Anjali Sud called it a flywheel. Scale drives ad yield, ad yield funds more content, more content brings more scale. Speaker 3: And it closed faster than Fox ever projected. What's interesting about that flywheel is how CPM math sits at the center of it. Grant: This is where it gets good. According to Vitrina.ai's AVOD analysis, premium brand-safe content, your procedural dramas, your family shows, commands $8 to $15 CPM. Poorly curated catalog? You're looking at $2 to $4. Speaker 3: That's a 7x spread on the same viewing hours. That's not a taste judgment. That's real money. Grant: Right. And when 74.2% of all TV viewing in Q4 2025 was... And with ads supported, according to Nielsen, that spread becomes the whole ball game. Speaker 3: Okay, so here's where I push back a little. You call it a market signal. Reid Mercer: Audiences chose ad-supported, so content that works there is what the market wants. I get that logic. Grant: But... Reid Mercer: But the filter isn't the audience. The filter is the brand safety screener, a Procter & Gamble buyer doesn't greenlight content that makes their laundry detergent ad look bad. That's the actual decision maker. Grant: The laundry detergent standard. I love that. Reid Mercer: I mean, name the genres that clear that bar cleanly. Procedurals, yes. Home improvement, absolutely. Legal dramas where nobody gets too dark. It's too dark. Grant: Reality dating shows, Speaker 3: Yeah. Grant: competition formats, anything aspirational, and then ask yourself what doesn't clear in. Prestige drama, morally complex characters, the kind of show where the advertisers worry the clip goes viral for the wrong reasons. Reid Mercer: Noting that seven ex CPM gap means a challenging show, even a great one, is structurally less valuable in AVOD, not because nobody wants to watch it. Grant: Because Unilever won't run next to it. Speaker 5: It Reid Mercer: right. Exactly; so you're not killing the show with a cancellation call, you kill it at the CPM spreadsheet before it ever gets green lighted. Grant: And CNBC's April analysis on streaming economics makes this point clear: Wall Street now rewards the platforms that can prove advertiser friendly yield, not just raw viewing hours. Reid Mercer: Which means Tubi's flywheel, as impressive as it is, spins toward a pretty specific kind of content. Grant: And that's going to matter a lot when we look at what actually gets ordered in twenty Speaker 4: twenty. Grant: in 2026 for 2027, because with the upfront commitments locked in this week, that's the green light cue. So here's the question that ties all of it together: What actually gets greenlit in 2027 because of the commitments made this week? Reid Mercer: Right, and the math is pretty direct. Grant: Mm-hmm. Reid Mercer: Upfront packages close now, studios run the numbers in late 2026, and the shows that fit the winning CPM profile get ordered. That's the filter. Grant: Which is attention nobody wants to say out loud. Tubi's own data, their Stream 2026 report with the Harris Poll. Found that seventy-six per cent of viewers want original content over remakes or franchise extensions-up twelve per cent year over year. Reid Mercer: seventy-six per cent want originals, and what are the platforms commissioning? Grant: Sequels, IP extensions, brand-safe enough to clear a CPM screener. Reid Mercer: So the audience is pulling in one direction and the ad money is pulling the other way entirely. Grant: Exactly, and here's where the middle gets really uncomfortable. The mid-budget original series-the format that built prestige TV-is getting crushed from both sides: too expensive for pure AVOD math; not franchise-scaled enough for Disney or Netflix's margin targets. Reid Mercer: Right, right. You can't run a Succession-style drama on a $2 to $4 CPM catalog budget. Grant: Yeah. Reid Mercer: And it doesn't have a theme park ride either, so Disney's not touching it. Grant: No merchandise, no theme park, nowhere to live. Reid Mercer: You know what I keep coming back to? The shows that actually built streaming's reputation-your Ozarks, your Fleabags-would they clear the green light filter we've been describing today? Grant: Honestly, I don't think some of them would. Not under 2027 economics. Reid Mercer: And that's the real stakes. Look, Reed can argue, and he's not wrong, that ad-supported TV is just returning to how the business worked before SVOD money distorted everything. Broadcast always had a sponsor layer—one hundred percent. This isn't new; the sponsor layer existed in the fifties. SVOD just gave us a decade where it didn't have to. So if you're a producer or an investor right now, the Greenlight conversation in twenty twenty-seven has an advertiser layer baked in that just wasn't there five years ago. That's the practical reality. Grant: Mm-hmm. Reid Mercer: Build for it or work around it, but don't pretend it isn't there. The golden era of shows nobody asked for in a spreadsheet. Grant: Cheating is over. Whether we get another one depends on who's willing to fund the gap. Okay, that's going to do it for today's episode. And Grant, I gotta say the futures market analogy is the one that sticks with me. Right? Because once you see the upfront as a forward commitment market, everything else about the week makes sense. The ads are getting greenlit before the shows are. That's the whole thing. The advertiser layer is now a structural filter on what actually gets made, full stop. Reid Mercer: And this 6% number, Netflix at $3 billion against a $50 billion business, that's still a small slice, but the rate of change is what matters. Grant: Huge. If you're thinking about where content money flows next, watch the ad tech stack. That's your real signal. Reid Mercer: All right, if this episode got you thinking, tell a colleague, email us at Blueprint at hey meadow dot com or tag us on social. Grant: New episodes every Tuesday. Thanks for listening to Blueprint. We'll see you next week.