Microsoft and Netflix team up to create an ad-supported streaming tier.


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Netflix is partnering with Microsoft to build an advertisement-supported tier of its streaming service, as it races to offer a cheaper option for consumers amid tough competition and soaring inflation.

The streaming service, which had reportedly been speaking with potential partners, chose Microsoft because it “offered the flexibility to innovate over time on both the technology and sales side, as well as strong privacy protections for our members”, according to chief operating officer Greg Peters on Wednesday.

Netflix chief executive Reed Hastings had in April announced the company would create an advertising-supported version of its service. The news came as a surprise as Hastings had previously been staunchly against ads, describing Netflix as an advertising-free zone that allows viewers to “relax” without being “exploited”. 

The push into advertising is part of Netflix’s aim to reorient itself for leaner times. Analysts have compared Netflix’s fall to the dotcom crash. It has lost nearly two-thirds its market value since November.

Disney, the other giant in the world Streamingbusiness recently stated that it would launch a lower-cost, ad supported version of its service.

Both Netflix and Disney share the same goal: more subscribers. Their challenge is to make sure that advertisers are attracted to the ad-supported option and that it doesn’t drain too many customers.

Netflix has not revealed pricing details or other information about the service. “It’s very early days and we have much to work through,” said Peters.

Disney chief Bob Chapek in May said an ad-supported Disney Plus is “good for the consumer because it’s going to give us another entry price point”. 

Disney is able to compete with Netflix because it controls Hulu streaming, which also has an ad supported tier. It also has experience selling ads through traditional TV services like ABC.

Netflix revealed April its decade-long streak of subscriber growth in April EndedInvestors are being scared and questions raised about the value entertainment companies that compete in streaming. Netflix is also planning to crackdown on password-sharing in an effort to stem the decline of subscribers.

Other streaming services in the US and globally already have ad-supported streaming, including Warner’s HBO Max, NBCUniversal’s Peacock, and Paramount Plus.

Analysts question whether advertising is a return back to traditional TV. “It is scary if the only way to reinvigorate growth is offering cheaper products that worsen the consumer experience, essentially making it more like the dying linear TV experience,” said Rich Greenfield, an analyst at LightShed Partners.

The deal is a win for Microsoft as it seeks to build a broader advertising platform and become a more credible alternative to Google, which was among the advertising companies competing for the Netflix business. The work with Netflix will depend heavily on the technology and ad sales capability it obtained last month with the acquisition of Xandr, a consumer advertising platform, from AT&T.

Microsoft chief executive Satya Nadella painted the partnership as a first step towards building an ad service that supports a wider group of media companies, at a time when Google’s advertising practices have come under regulatory scrutiny.

“We want publishers to have more long-term viable ad monetisation platforms, so more people can access the content they love wherever they are,” he tweeted after the deal was announced.

The software company did not say whether it would be supplying additional data beyond the viewing and customer data that Netflix has to aid in targeting ads.

Microsoft’s advertising revenue exceeds $10 billion annually. It is the fourth-largest digital advertising company. Most of its sales come from Bing and job postings on LinkedIn. The $6.3bn acquisition of aQuantive by Microsoft in 2007 was a major investment. But five years later, the company reversed its course and wrote off almost all of the investment.


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