Netflix partners with Microsoft to launch its ad-supported subscription model | companies

Netflix has teamed up with Microsoft to launch its cheapest subscription offer but with advertising, after the company announced that it lost 200,000 subscribers in the first quarter of 2020, during which time it obtained net profit of $1,597 million, below the $1,706 million it made in the same period a year earlier.

Platform diffusion, who spoke with other potential partners, ultimately chose Microsoft because “it offers flexibility, innovation and strong customer privacy,” said Netflix chief operating officer Greg Peters. He added that the software giant has “a proven ability to meet all of our needs as we work together to create a new ad-supported offering.”

Netflix, which has lost two-thirds of its stock market value since November, announced plans last April to launch this new ad-supported offering. A surprise for the market, since its founder and president, Reed Hastings, had always opposed the establishment of advertisements on the service.

But now the situation has changed. The company faces increasingly stiff competition and must prepare, like other technology companies, for the potential impact of rising inflation. Having a different entry price for your service can attract new subscribers. Thus, the new mode with advertising will complement its basic, standard and exclusive packages, without advertising.

“Our long-term goal is clear: more choice for consumers and a TV brand experience that improves the terms advertisers have in the linear format,” said Peters, who did not reveal how much the new one will cost. service. “It’s very early days and we have a lot to do,” he said.

The Hastings company is not alone in the film industry with diffusion who are looking for ways to boost their business in the current economic environment and increase their number of subscribers. Disney also recently announced that it would launch a cheaper version of its ad-supported service. Other services like Warner’s HBO Max, NBCUniversal’s Peacock and Paramount Plus also already have ad-supported offerings.

A recent study by the Boston Consulting Group in the United States indicates that the audience of video platforms integrating advertisements has quadrupled in the last year. In this sense, services such as Pluto Tv, Roku, Crackle or Tubi, which are partially or totally ad-supported, have increased their popularity among users who use more than three streaming services. diffusion.

The decision by Netflix and Disney is not without risk, however. Both companies will need to avoid their current plan subscribers moving to this new, cheaper package and, instead, they will need to look to broaden their customer profile. Similarly, they must demonstrate their ability to attract advertisers.

“Sellers who turn to Microsoft for their advertising needs will have access to Netflix’s viewership and all of its premium online TV inventory,” he said. Mikhail Parakhin, President of Web Experiences at Microsoft. For this company, the deal is a big success, because for some time they have been trying to build an advertising platform that ends Google’s dominance in this industry.

Microsoft will rely to provide the service to Netflix on the technology and ad-selling capability of Xandr, the consumer advertising platform it purchased last December from AT&T. This company, formerly known as AppNexus and founded by former employees of Google (Doubleclick) and Yahoo (Right media), is one of the iconic brands in the ad tech landscape.

Microsoft wants to take advantage of the fact that Google’s practices are under the scrutiny of regulators in the United States and Europe to boost its advertising service. “We want publishers to have more sustainable ad monetization platforms, so more people can access the content they love wherever they are,” said Microsoft CEO Satya Nadella. , after having read the agreement.

Advertising generates more than $10 billion in annual revenue for Microsoft, making it the fourth-largest player in the digital advertising industry, with the majority of its sales coming from its Bing search engine and LinkedIn posts, the FT recalls. Precisely, the incorporation of Xandr opens up new monetization possibilities for Microsoft on LinkedIn or on its Xbox console. And all in the context of the anticipated end of the cookies of third parties and the challenge of articulating advertising segmentation that respects users’ privacy.

Beyond the new ad-supported offering from Netflix, the streaming platform diffusion it’s also testing a model in Chile and Peru that increases fees based on how many different places you connect from. Users will be notified by the company and then have to pay an additional two to three dollars for each new user added to the account.

JPMorgan bank thinks the partnership with Microsoft may have been attractive for Netflix because Bill Gates’ company has relationships with “virtually every company and every advertiser”. In fact, they say “the association could expand its strategic reach over time to potentially include cloud and gaming elements as well.” On the other hand, from RBC Capital Markets, they point out that compared to Google, Amazon or NBC Universal, Microsoft does not have conflicting inventory that directly competes with Netflix: “Although Microsoft has a history of advertising with Bing and LinkedIn , they do not have an established presence within CTV and, furthermore, they lack an established sales force and an ad server for the market”.

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