Why Netflix chose Microsoft to sell ads

Credit: Tania Mousinho via Unsplash

We all knew that Netflix was getting into the advertising business.

Subscription growth, following a surge to streaming media during the pandemic, had hit a wall.

Netflix needed a way to grow and advertising, despite the company spending years saying never, was the only path.

What’s coming is a new lower priced ad-supported subscription plan. Watch Netflix for a better price as long as you watch the commercials.

Netflix says it’s early days and there’s a lot to do: “But our long term goal is clear. More choice for consumers and a premium, better-than-linear TV brand experience for advertisers. We’re excited to work with Microsoft as we bring this new service to life.”

Joanna O’Connell, a principal analyst at Forrester: “The speculation has been swirling for months that Netflix was getting into the ad business.

“We’ve long seen this as necessary for Netflix, and have been clear about the upside, so no big shock there.”

What is news is that Netflix chose Microsoft as its adtech partner. Why Microsoft?

Microsoft’s acquisition of Xandr, which closed this year, makes this feasible.

Xandr, formerly AppNexus, was an early player in programmatic display ads when acquired by AT&T in 2018

O’Connell: “Xandr’s current public-facing story checks many of the right boxes: solutions for monetsing programmatic streaming inventory and advanced TV, holistic yield management, ad serving, and supporting clients’ preferred industry IDs included,” she says.

Other potential partners such as Google, with YouTube, have interests competitive to Netflix’s. 

O’Connell says Microsoft and Netflix haven’t had a strong commercial relationship until now but they have ties.

Brad Smith, Microsoft’s president and vice chair, sits on Netflix’s board, and CEO Reed Hastings sat on Microsoft’s board from 2007 to 2012.

Netflix’s first version of “Watch Instantly” used Microsoft’s Silverlight for streaming instead of the more commonly used Flash Player, and Xbox 360 was the first console to feature an HD Netflix streaming app.

Mikhail Parakhin, president Web Experiences, Microsoft: “At launch, consumers will have more options to access Netflix’s award-winning content.

“Marketers looking to Microsoft for their advertising needs will have access to the Netflix audience and premium connected TV inventory.

“All ads served on Netflix will be exclusively available through the Microsoft platform. Today’s announcement also endorses Microsoft’s approach to privacy, which is built on protecting customers’ information.”

With inflation rampant, and households watching budgets, an ad supported subscription model comes at the right time.

Economists see consumers reducing their number of subscriptions to streaming platforms to take pressure off when household costs are rising

Disney also plans an advertising supported subscription model for its streaming platform Disney+. Last week Disney announced a deal with adtech The Trade Desk.

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