Netflix chooses Microsoft as technology and business partner for new ad-supported mode

The question of who would support Netflix in building its ad-supported version of Netflix has been cleared up after weeks of speculation that included various players such as The Trade Desk and Comcast. In the end, Microsoft will operate as a technology partner of the streaming giant to provide the necessary infrastructure, and will also collaborate in the sale of advertising space.

This means that anyone wishing to advertise on Netflix will have to plan exclusively through Microsoft’s platform, which in turn is a major boost for the latter company’s advertising business. According to the joint statement announcing the deal, the flexibility to innovate technologically and commercially with its new partner, as well as the protection of subscriber privacy that it has committed to, has been key for the streaming service.

The streaming platform has ruled out other options such as Google and Comcast, not least because they operate services with which it competes.

In principle, Netflix’s intention is for its ad-supported mode to start operating in the US at the end of this year, but there is no confirmed date. The company had announced in April that it would launch this alternative, in the context of the first drop in users in a decade, and at the time spoke of possible longer start-up times. But its entry into advertising also coincides with that of its great rival Disney+, which also aims to release the version before the end of 2022, and this could have contributed to accelerating the plans.

Netflix is counting on an undetermined number of its current customers to downgrade their subscription to this new tier in order to pay less, especially in view of the deterioration of household economies in a scenario of very high inflation. And that this cost will in turn encourage new subscribers, who have been suffering in important markets after successive tariff increases. In particular, the last price review in the US and Canada was partly responsible for the loss of 600,000 customers, which is crucial in the region where the company earns the most revenue per user.

For Microsoft, the new alliance offers an opportunity to improve its position in the advertising business, which in 2021 generated more than $10 billion in revenue. That figure is 32% more than in the previous year and 6% of total revenues, and the commitment to improve it has driven the purchase of Xandr and the collaboration with Taboola in the launch of its open scheduling service.

Of all the possible partners, Microsoft had the advantage that it does not operate a service that competes with Netflix, as is the case with Google (YouTube) and Comcast (Peacock), companies with which the streaming platform has been in talks in recent months. It also brings technological capabilities superior to those it could have obtained with The Trade Desk, another of the rejected candidates. Netflix is likely to provide more details of the deal on 19 July, when it reports its second-quarter results. For this period it had forecast a loss of two million users.