Netflix announced it has picked Microsoft as its global ad-tech and sales partner, a substantial development in the streamer’s closely-watched plans to launch an ad-supported tier.
In a blog post, Netflix Chief Operating and Product Officer Greg Peters praised Microsoft’s ability to meet its advertising needs and offer flexibility when it comes to innovation and creating strong privacy safeguards for consumers. The executive added the partnership is still early days but ultimately aims to provide more choice to viewers and create a “better-than-linear TV” premium experience for brands.
The tie-up represents a major coup for Microsoft, a stealthy but growing player in the digital advertising sector. In December, the LinkedIn and Bing search engine owner acquired the programmatic unit Xandr from AT&T to complement its existing data-driven advertising solutions. Microsoft generated more than $10 billion in ad revenue last year.
"Microsoft, the fourth-largest ad seller in the U.S., offers fewer conflicts of interest for Netflix than some other companies and it has strong relationships with a wide swath of advertisers,” said Ross Benes, principal analyst at Insider Intelligence, in emailed comments.
“One of Netflix's greatest strengths is its superior user experience,” Benes added. “Given the ad experience found in Microsoft products like Bing and LinkedIn, this partnership indicates that Netflix's ads won't set a new standard for the burgeoning streaming space, but rather will mimic the standard ad experience for better or ill."
Netflix met with a number of parties, including Google and Comcast, after confirming plans for an ad-supported tier in April. The Wall Street Journal earlier this week reported the “Stranger Things” distributor is also interviewing multiple external candidates for a role that will oversee its newfangled ad operations.
Microsoft’s tech infrastructure and know-how could help the company get the concept off the ground on a faster timeline. The streamer has reportedly told employees that ads could go live as early as the end of 2022. The shift brings fresh complexities to Netflix, including around licensing content from other studios, per a separate Journal report.
Netflix long resisted the call of a cheaper, ad-supported subscription, which is common to the streaming category, but has been rocked by slowing subscriber growth that contrasts sharply with earlier pandemic highs. The downturn has resulted in two rounds of layoffs in recent months. The company reports its second-quarter earnings Tuesday.
For more on the quickly-evolving ad-based video on demand (AVOD) space, see below.