The bake-off to find Netflix’s inaugural advertising partner is over, and Microsoft is the winner.
The tech giant will be Netflix’s global advertising technology and sales partner, the streaming service said Wednesday.
“Microsoft has the proven ability to support all our advertising needs as we work together to build a new ad-supported 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,” Netflix COO and chief product officer Greg Peters wrote in a blog post.
The deal with Microsoft will allow Netflix to enter the ad space quickly, though Peters cautioned that it is still “early days” for its ad-supported offering.
Netflix revealed its intention to add a less-expensive ad-supported offering in April, with co-CEO Reed Hastings saying at the time “It is pretty clear that it is working for Hulu, Disney is doing it, HBO did it. We don’t have any doubt that it works,” and adding that “allowing consumers who would like to have a lower price, and are advertising-tolerant, get what they want, makes a lot of sense.”
Hastings’ colleague, co-CEO Ted Sarandos, added at the advertising-focused Cannes Lions festival last month that “we’ve left a big customer segment off the table, which is people who say: ‘Hey, Netflix is too expensive for me and I don’t mind advertising.’”
Netflix’s decision came as a surprise to the industry, given its longstanding distaste for ads, and word spread quickly that it was looking to find a well-equipped partner to help it get an ad-backed plan off the ground quickly. To that end, Netflix seemingly spoke to everyone in the ad tech world, including Google, Comcast, The Trade Desk and Roku. Microsoft, which acquired the Xandr digital video advertising service from AT&T earlier this year, ultimately won out.
Netflix’s advertising plans were also the talk of the TV upfronts this year, with many legacy competitors happy to gloat to marketers about the strategic move.
Netflix is said to be in talks with potential candidates to lead its nascent advertising division, with Hastings suggesting in a recent memo that it could staff up over the next year and a half.
The ad-supported tier is all but certain to bring another change to how Netflix operates: Improved transparency around what shows consumers are watching. Media buyers and advertisers always want a sense of how many people are seeing their ads, and some data around who those people are.
“In the ad world … one of the requirements is some level of transparency and third-party auditing and reporting. Advertisers want some proof points,” Jim Lombard, CEO of connected TV ad marketplace Tetra TV.
