Netflix has named Microsoft as its partner for its ad-supported service, US companies announced overnight.
“Microsoft has proven its ability to support all of our needs as we build a new ad-supported offering together. More importantly, Microsoft offered the flexibility to innovate over time on both the technology and sales side, as well as strong privacy for our members, says Netflix CEO Greg Peters.
The Stranger Things streamer, which has struggled to retain and add subscribers, announced in April that it planned to roll out an ad-supported level after years of opposition to the move.
CEO Reed Hastings has long been opposed to adding ads or other promotions to the platform, but said during the company’s pre-recorded earnings conference that it “makes a lot of sense” to offer customers a cheaper solution.
The offer has a huge profit potential for Netflix as it works to sign up more users. In an effort to attract more subscribers, Netflix has increased its content consumption, especially on originals. To pay for it, the company raised the prices of its service. Netflix said these price changes are helping to boost revenue, but were partly responsible for a loss of 600,000 subscribers in the U.S. and Canada over the past quarter.
Netflix has been interviewing potential partners for the past many months, including Google and Comcast, as it prepares to launch the level before the end of 2022.
Unlike Google, which owns YouTube, and Comcast, which owns NBCUniversals Peacock, Microsoft does not operate a competing streaming service for Netflix.
Peters said the advertising effort is still in its “very early days”, with “a lot to work through”.
Netflix is slated to release quarterly results on Tuesday. It had previously warned that it could lose two million subscribers during the second quarter. Netflix stock has fallen more than 70 percent year to date. The company’s share rose more than 1.5 per cent. Wednesday afternoon trading in the US on an otherwise downward day for the markets after the June inflation data came higher than expected.
The new business is a boon for Microsoft’s advertising division, which contributes 6 percent of the software company’s total revenue.
The Bing search engine, where Microsoft generates revenue by displaying ads in search results, is not as popular as Alphabet’s Google, and in 2015, Microsoft left the display advertising market when Aol took over this device.