More product placements may come to Netflix (but don’t call them ads)

A couple of weeks ago, a research firm called Concave Brand Tracking drew some unexpected attention from Netflix after claiming that season three of Stranger Things contained about $15 million worth of product placement.

Netflix pushed back on the report’s implications, telling Concave that it wasn’t paid by Coca-Cola, Burger King, or any of the other brands that appeared in the hit show. After a “very polite discussion,” says Concave director Dominic Artzrouni, the research firm added a quote from Netflix to its report, saying that the products in Stranger Things 3 weren’t paid for or placed by third parties. “They’re all part of the Duffer Brothers’ storytelling, which references 1980s consumer and popular culture,” Netflix’s statement said.

“It seems like they really want to stay away from that image of them selling out,” Artzrouni says.

Similar disclaimers have popped up elsewhere. Vox and CBS MoneyWatch ran the same statement from Netflix in its stories on Stranger Things product placement, and series creators Matt and Ross Duffer told the New York Times that none of the brands in season three gave them a revenue cut. Netflix even contacted CNBC about a year-old story to clarify that the company wasn’t paid to feature KFC in Stranger Things season two.

Despite the pushback on the idea that it accepts payment in return for promoting products—an arrangement that sounds suspiciously like a form of advertising on an ad-free service—Netflix has much to gain from relationships with brands, whether or not anyone writes anyone else a check. That’s especially after a quarter in which it lost U.S. subscribers. Even if money doesn’t change hands, several brands featured in Stranger Things are spending big bucks to promote the show in their own marketing, resulting in a quid pro quo that ultimately helps Netflix attract more subscribers. While Netflix insists that it won’t run ads on its streaming service, it can still lean more on product placement to ramp up its marketing for future hits. In that sense, Stranger Things may be a blueprint for what’s to come.

How a product gets on TV

Stacy Jones, the CEO of the content marketing agency Hollywood Branded, says there are three main ways in which a product gets onto a TV show.

Traditional product placement occurs when a brand loans or trades its product to a production. A beverage company, for instance, might supply a production with water and soft drinks, or a phone maker might send handsets to use on camera so the production doesn’t have to buy its own. In these cases, the production’s main goal is to offset some costs and stay under budget.

A more formal kind of product placement, Jones says, is “brand integration,” in which the brand pays a fee to secure a more prominent role in the show. These kinds of arrangements, which took off during the reality-TV heyday of the early aughts, might guarantee a close-up shot of a product logo or a mention of the product by name.

Finally, there’s “copromotional marketing,” in which the brand helps advertise the show through its own marketing channels in exchange for promotional placement. Though Heineken was rumored to have spent $45 million for placement in the James Bond film Skyfall, that doesn’t mean the production made $45 million off the deal. Instead, Skyfall benefited from the millions that Heineken spent on beer ads that also mentioned the film. This approach tends to be more common in movies than TV shows, Jones says, but that’s starting to change with streaming services such as Netflix, whose full-season releases have the same impact as a new movie release.

Jones says Netflix shows have been involved in all levels of product placement—either on its own or through its production companies—but Stranger Things falls mainly into the copromotional category, featuring brands on the show in exchange for them marketing Stranger Things in the real world. It’s a mutually beneficial relationship. Burger King, for instance, is marketing an “Upside Down Whopper“—an inverted hamburger in special packaging—while Coca-Cola is bringing back New Coke. As of this week, Concave estimates that Coca-Cola alone has benefited from the equivalent of $3.8 million in advertising from the show, based roughly on the screen time its product got on the show and the number of people who’ve watched.

While Netflix says these aren’t paid promotions, Jones argues that the company gets plenty of value in return. Although she doesn’t have direct knowledge of Netflix’s deals with brands such as Burger King and Coca-Cola, she speculates that those brands presented a plan for how they’d bring more awareness to the show. In exchange for placement, they might even guarantee a certain number of ad impressions based on their own marketing budgets, sales, and retail footprints.

“The value that the brands get in partnering with Stranger Things is equal to the value that Netflix is getting,” she says. “These are very constructed, well-thought-out deals that Netflix did, because they knew that they were going to do a bigger campaign with the brand.”

Fueling the promotion machine

Jones and other experts agree that product placements on their own are not a big revenue opportunity for a company like Netflix.

While linear TV-ad spending hit $70 billion in the United States last year, PQ Media estimates that product placement was just a $7 billion business, according to Leo Kivijarv, the firm’s executive vice president for research. Hollywood Branded’s Stacy Jones believes PQ’s valuation of the paid-placement business is pretty generous. In other words, a company like Netflix isn’t going to compensate for slower subscriber growth by pumping its shows with paid product placements.

“These shows cost millions, and millions, and millions to produce, so the amount of money is never going to be important enough for them to focus on that,” says Concave’s Artzrouni.

The more likely outcome is that Netflix will ramp up its copromotional deals with major brands as it tries to manufacture more hits like Stranger Things. Netflix itself blamed its content lineup for a weak second quarter, suggesting that the company needs more home runs to keep growth going, and in March, Cheddar’s Michelle Castillo reported that Netflix was boosting its “marketing partnerships” effort by hiring people away from ad agencies.

That doesn’t mean Netflix shows will soon become overrun by product placements, but if the company needs more hits, it might start seeking out more shows with the potential to feed a marketing frenzy, as Stranger Things does with its celebration of 1980s culture.

“If they’re considering two different types of shows, and one of them does seem more suited for this, it could be a factor—let’s say, one of many factors—to have a show that has this sort of appeal for cross-promotion,” Artzrouni says. “Because cross-promotion leads to these big advertising campaigns that are basically free for them, which can then lead to big audiences.”

In the meantime, Netflix may continue to argue that it’s not doing product placements, effectively laundering those placements’ value through other companies’ marketing budgets. At that point, Jones says, Netflix is just arguing semantics.

“Netflix is saying that they don’t do product placement, but the entire world considers a brand appearing in content, whether it’s paid or unpaid, to be product placement,” Jones says. “That is the vernacular—that is what it is.”