Microsoft and Netflix have announced they are teaming up to launch the first ever ad-supported subscription plan for the streaming giant. It’s the biggest entertainment deal that Microsoft has scored so far.
“We’re thrilled to be named Netflix’s technology and sales partner to help power their first ad-supported subscription offering,” Microsoft president Mikhail Parakhin announced. “Consumers will have more options to access Netflix’s award-winning content. Marketers looking to Microsoft for their advertising needs 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. Today’s announcement also endorses Microsoft’s approach to privacy, which is built on protecting customers’ information.”
“Microsoft has the proven ability to support all our advertising needs as we work together to build a new ad-supported offering,” Netflix COO Greg Peters added. “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.”
How Strange a Pairing
The mentions of privacy most likely explain why Netflix chose Microsoft over Google which had been widely expected to be the company that delivered ads for Netflix. Unlike Google or Comcast, Microsoft doesn’t compete with Netflix in the streaming wars.
At the same time, cross-town rival Amazon, which has made major inroads into Hollywood movie-dom, including the acquisition of MGM, counts Netflix as one of its biggest customers. Netflix will spend over $1 billion on “streaming services and cloud computing costs” through 2023. Could Azure be a potential cloud computing storm front?
Or is there an even more ominous, longer term strategy at play for the partnership? Needham Senior Analyst Laura Martin says it could be possible that Netflix is hoping to be bought by Microsoft. Stranger things have happened.
Microsoft has long been trying to cement its place in entertainment, positioning itself as the cloud provider for media with partnerships like Universal and Warner Bros. But its partnership with Netflix is the most prestigious it’s made in the space so far. Linking up with Netflix could be the foot in the door it needs to push further into Hollyworld.
How Will It Work
Microsoft added the ability to deliver and sell ads when it acquired ad tech company Xandr, formerly known as AppNexus, from AT&T for $1 billion in December of 2021. Xandr was an early adopter of Unified ID 2.0 (UID2), the open-source identity framework, which covers areas such as addressability. UID2 has recently been backed by Disney as well as by Amazon Web Services (AWS) at the recent Cannes Lions International Festival of Creativity.
With leading publishers, data aggregators, and ad tech partners now deploying UID2, advertisers are able to manage addressability, frequency management, and measurement across channels in a way that’s not possible with cookies.
“By adding Netflix’s 220-million-plus subscribers, Xandr will soon have an extensive universe of households they can leverage for addressable media efforts,” explained Ross Capers, executive VP of media at agency The Shipyard. “They can leverage this first-party data to find and identify new prospects for their services.”
It could be that Netflix is looking for an exit,” reported Yahoo! Finance, “in the hopes that after Microsoft digests its Activision acquisition, it turns next and buys Netflix, which would be a complementary kind of video content, premium video content, like Activision is in the video game space.”
It could also mean that Xbox studios would be able to get their hands on Netflix’s well-known series, like Stranger Things, The Umbrella Academy, and more. Meanwhile, for Netflix studios, it means bringing Xbox’s original titles to the big screen, which will be beneficial for the streaming company since it needs to constantly present new shows on its platform.
The approach also means Netflix gets the potential benefit of the full open internet of advertising demand for its premium inventory, maximizing value for advertisers and yield for their industry-leading content. [24×7]