Netflix partners with Microsoft to launch ad-supported subscription tier

Netflix has named Microsoft as adtech partner for a new ad-supported offering. In April, Netflix teased the move to an ad-supported tier in response to fleeing subscribers. The streamer shed 600,000 subscribers in 1Q and expects to lose another 2 million in the most recent quarter.

How we got here. Microsoft strengthened its position in the adtech game by acquiring Xandr from AT&T late last year. 

NBCUniversal was another option, with its FreeWheel ad unit. But likely it came down to sales relationships.

“As a sales partner, Microsoft has the expertise and connections with all the buyers as they have monetized their own significant web and search properties over the past few decades,” said Hunter Terry, VP solutions consulting & CTV commercial lead at identity and data management company Lotame.

What this means for advertisers. It remains to be seen if a lower-priced subscription with ads will entice value-seeking Netflix customers. But the entry of Netflix into the ad-supported streaming world (AVOD) adds a lot of premium inventory for advertisers to bid over.

“The partnership announcement between Microsoft and Netflix is exciting news for advertisers,” said Matt Sotebeer, Chief Strategy Officer at adtech campaign performance platform Digital Remedy. “Not only does it underpin the momentum we are seeing with the continued expansion of AVOD, this specific partnership creates more competition in the industry.”

Advertisers will have access to even more premium AVOD inventory, as Disney announced this week it is partnering with The Trade Desk to build out an ad platform for hit Disney+ shows.

Why we care. A major player like Netflix getting into the AVOD space changes the entire equation for TV watchers comparing steep cable subscription fees with mounting prices for numerous a la carte streaming options. The ad-free nature of Netflix streaming was always a high selling point, same as for premium cable, back when HBO first appeared.

Today, ad-supported streaming will allow consumers to subscribe to more services than if they paid top dollar for ad-free services. HBO Max is a good example of the multi-tiered offerings from which their customers can choose. This all points in the direction that ads could become more acceptable on streaming as AVOD matures.

Dig deeper: Dig deeper: AVOD, cookieless identity resolution, give CTV advertisers more options