Last week, Netflix announced that it would partner with Microsoft to launch its forthcoming ad-supported tier. Then on Tuesday, as part of its second-quarter earnings report letter to shareholders, the streaming giant confirmed that the lower-priced subscription option would be available early next year.
In a video interview with analysts after the report was made public, Netflix COO Greg Peters confirmed that Microsoft will be the streamer’s exclusive sales channel and ad server for its commercial inventory. With no institutional experience in selling or delivering ads, Netflix needed to find a partner who could help facilitate the process.
When asked if the partnership would go beyond advertising, Peters said that it likely would not for the the foreseeable future. However, that could change, depending on how things go. Given Microsoft’s expertise in gaming and other applications, the potential partnership could expand.
“We’ve done other stuff with Microsoft. We continue to do work with them on sort of go-to-market partnerships, things like that,” said Peters. “We’ll look for those opportunities as they exist with Microsoft and with other companies as well. So I would say this doesn’t foreclose on anything like that. But you should think about this as a great ads partnership deal at the end of the day.”
Before Microsoft, Netflix talked to Google as well as Comcast and Roku about potential ad business partnerships. Ultimately, the streamer settled on Microsoft because of its “technical” and “go-to-market” capacities, according to Peters.
“We saw a high degree of strategic alignment in their interest in innovating in the space and really working with us over the next several years to basically try and create a new ads ecosystem around premium TV, connected TV ads,” he said.
Peters went on to explain that the ad-supported tier will have a deliberately slow start, as the company aims to follow a “crawl, walk, run model.”
“At the beginning, it will look like what you’re familiar with, but over time, we think there’s a tremendous opportunity to leverage that innovation DNA that we have,” Peters said, “as well as a bunch of enabling characteristics around addressability and measurability and things like that to provide an incredible experience for consumers, those who choose to take the ad-supported offering, but also provide an incredible experience for brands and advertisers who want to work with us to make sure that we’re doing a good job of elevating what that looks like for them.”
Though subscriber numbers have recently taken a hit on the platform, Netflix is bullish on projections for the ad-supported version. Netflix models show that ad-supported video-on-demand (AVOD) revenue per user should meet or exceed what comes in from a subscription video-on-demand (SVOD) subscriber.
Netflix’s collaboration with Microsoft came as a surprise for some when it was initially announced. What made this possible was Microsoft’s December acquisition of premium advertising technology platform Xandr, with the deal being finalized on June 6. Due to the out-of-the-box partnership between the two conglomerates, some onlookers have wondered whether or not Microsoft might end up being a potential buyer for Netflix down the road.
While the streamer’s Wall Street value has taken a substantial hit over the last few months, if its projected 1 million subscriber increase in Q3 comes to pass, and the AVOD option is as successful as execs believe it will be in 2023, the world’s largest streaming service could be back to being a very attractive acquisition target for the world’s second-largest corporation in terms of market capitalization.
Netflix
Netflix is a subscription video streaming service that includes on-demand access to 3,000+ movies, 2,000+ TV Shows, and Netflix Originals like Stranger Things, Squid Game, The Crown, Tiger King, and Bridgerton. They are constantly adding new shows and movies. Some of their Academy Award-winning exclusives include Roma, Marriage Story, Mank, and Ma Rainey’s Black Bottom.