Netflix has tapped Microsoft to help deliver the commercials on a cheaper version of its streaming video service set to launch later this year with a commitment to minimizing the intrusions into personal privacy that often accompany digital ads.
The alliance announced on wednesday marks a big step toward Netflix’s first foray into advertising after adamantly refusing to run commercials on its streaming video service since its inception 15 years ago.
Netflix announced it would drop its resistance to ads three months ago after revealing it hadduring the first three months of the year amid tougher competition and rising inflation that has strained household budgets. That made management realize that the time had come for a less expensive option.
Netflix has warned that it will likely report even bigger subscriber losses for the April-June period, heightening the urgency to roll out a cheaper, ad-supported version of its service to help reverse the erosion of customers. That drop has contributed to a 70% drop in its share price so far this year, wiped out about $190 billion in shareholder wealth and prompted hundreds of layoffs.
The Los Gatos, California-based company is scheduled to post its April-June numbers on July 19, but has not yet specified when its ad-supported option will be available, other than that it will launch before 2023. Netflix’s announcement about the partnership with Microsoft also left out crucial information: the anticipated price of the ad-supported option.
“It’s very early days and we have a lot to figure out,” Greg Peters, Netflix’s chief operating officer, said in a post that also highlighted Microsoft’s “strong privacy protections.”
Landing the advertising deal with a streaming video service that boasts more than 220 million subscribers represents a major blow to Microsoft, which has been engaged in a long and often acrimonious battle over the past 20 years with Google, the dominant force in the Internet. digital advertising. .
Mikhail Parakhin, president of web experiences at Microsoft, said the Redmond, Washington company is “excited” about Netflix’s choice in a blog post that also underscored the company’s commitment to privacy.
While Microsoft still makes software that powers most of the world’s personal computers, Google has become increasingly powerful through its dominant search engine, ubiquitous Android smartphone software, and other popular digital services than last year. they generated more than $200 billion in advertising revenue, far more than any other marketing network.
But Google’s ad sales rely heavily on the personal information its mostly free services collect about its billions of users around the world, a form of surveillance Netflix evidently wants to prevent with business interruptions. on your video service to lessen the chances of alienating subscribers.
Microsoft may have had another factor in its favor as well. Netflix Inc. co-founder and co-CEO Reed Hastings served on the Microsoft Corp. board of directors from 2007 to 2012.