What’s going on with Netflix Ads and Microsoft?
Netflix may be trying to keep subscribers coming back.
On Wednesday, the streaming service announced that it was teaming up with Microsoft for a cheaper, ad-fueled subscription option.
Mark Weinstein, privacy advocate and founder of MeWe, a social media company, said Entrepreneur that with this new deal, Microsoft will essentially power the “background technology” used to bring ads to Netflix.
“It’s a big deal, it’s a big deal,” Weinstein said. “To the consumer, this seems like a very good choice that Netflix has made, in the interests of both a good, profitable partnership for both companies but also better, more granular privacy protections.”
For years, Netflix management insisted that the company would not bring ads to the platform. In a January 2020 earnings call, for example, Netflix CEO Reed Hastings said there was no “easy money” in advertising and there was a lot of existing competition, according to TechCrunch.
“We have a much simpler business model, which is just focused on streaming and customer delight,” he said, according to the outlet.
Netflix kept the content wheel going by raising prices, Insider noted. But things changed when Netflix reported an April subscriber loss of 200,000 accounts in its Q1 2022 report.
The company’s next earnings call is on Tuesday, and it has previously said it estimates it will lose 2 million subscribers in the second quarter. The company’s shares were trading at nearly $600 a share in January and fell to $175 on Thursday morning – it also laid off staff.
Research indicates that consumers are likely interested in cheaper ad-supported options and that Netflix is leaving money on the table without having any, especially as consumers are pressured by inflation and competitors proliferate.
Netflix had been looking for different candidates to support its ad business (Google, Comcast) but Microsoft stood out because it doesn’t have a streaming competitor, CNBC reported.
“Microsoft has the proven ability to meet all of our advertising needs as we work together to create a new ad-supported offering. Most importantly, Microsoft has provided the flexibility to innovate over time on both the technology side and sales, as well as strong privacy protections for our members,” Greg Peters, Netflix’s chief operating officer and chief product officer, said in a statement.