Netflix’s hunt for a partner to support the streaming giant’s forthcoming ad-supported subscription plan has come to an end, announcing Wednesday that Microsoft will be its global advertising technology and sales partner.
Netflix during Q1 earnings first indicated it would explore introducing a lower-cost ad-supported tier for its SVOD service. At that time Netflix CEO Reed Hastings said a new tier with ads would “phase in over a couple of years in terms of being material volume.” In May Netflix told employees the service could implement ads as early as the fourth quarter.
Since then it’s reportedly considered a number of partners, with NBCUniversal and Google in the mix.
But Microsoft has proven to be the winner, with Netflix saying the company “has the proven ability to support all our advertising needs as we work together” to build the new offering.
“More importantly, Microsoft offered the flexibility to innovate over time on both the technology and sales side, as well as strong privacy protections for our members,” said Greg Peters, Netflix chief operating and chief product officer, in the announcement.
Peters went on to say that it’s “very early days” and still much to work through. “But our long term goal is clear. More choice for consumers and a premium, better-than-linear TV brand experience for advertisers.”
Mikhail Parakhin, president of Web Experiences at Microsoft, perhaps unsurprisingly said that the company is “thrilled to be named Netflix’s technology and sales partner” to support the streamer’s first ad-supported offering.
Parakhin offered a few more details, saying that marketers working with Microsoft for advertising 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,” Parakhin added.
“This is a big day for Netflix and Microsoft. We’re excited to offer new premium value to our ecosystem of marketers and partners while helping Netflix deliver more choice to their customers,” he continued.
Netflix – a long-time hold out in favor of an SVOD-only model – is making a push into the ad-supported space as it looks for new avenues of growth, facing high subscriber penetration as well as issues with password and account sharing among different households.
John Buffone, VP and industry analyst at NPD, told Fierce that the most important thing isn’t which ad partner Netflix chose but that they’re going down the path of creating an AVOD offering at all.
“As price sensitivity increases it is of tantamount importance that Netflix be able to offer a lower cost tier which AVOD allows for,” Buffone said. “It’s also notable that the partner the company selected, Microsoft, does not present a competitive threat as they do not operate their own streaming video service.”
That’s in contrast to say NBCU, which has ad-supported streaming service Peacock that also competes for eyeballs and dollars.
Building out an ad-tier comes as recent survey data suggests Netflix’s value proposition has taken a hit in the eye of consumers. A Whip Media survey found the streaming giant ranked last for value satisfaction among leading SVODs, in contrast to first-ranked (and similarly priced) HBO Max. More than half that canceled Netflix said they weren’t getting enough value from the service, while 69% blamed price hikes. Content was also an issue, with 30% of those who canceled taking issue with library content and 28% saying they weren’t interested in the original programming.
Netflix’s move for a lower-cost tier with ads also follows an increasing array of ad-supported options available on the market.
SVOD leader and Netflix competitor Disney+ has its own plans to introduce an ad-supported option in the U.S. this year. Consumers appetite for lower subscription costs as a tradeoff for viewing ads also looks to be growing, alongside earlier mentioned increases in price sensitivity.
A recent NPD survey showed that cost was the No.2 reason U.S. consumers canceled an SVOD service, rising from its earlier position as the fourth most important factor. And U.S. households are now adopting ad-supported streaming services at a faster rate than strictly subscription-based options, according to Comscore, with more price conscious consumers in the face of continued inflation.