Netflix partners with Microsoft on an ad-supported subscription plan

The Netflix logo is visible on the TV remote control in this illustration taken January 20, 2022.

Dado Ruvic | Reuters

Netflix has named Microsoft as its partner for its ad service, the companies announced on Wednesday.

“Microsoft has proven its ability to meet all of our needs as we build a new ad-supported offering together. More importantly, Microsoft offered the flexibility to innovate over time in both technology and sales, as well as strong privacy protections for our members. Netflix COO Greg Peters said.

The Stranger Things streamer, who has struggled to retain and add subscribers, announced in April that he plans to roll out an ad-supported tier after years of resistance to the move.

Co-CEO Reed Hastings has long opposed adding ads or other promotions to the platform, but said during a conference call on pre-recorded earnings that it “makes a lot of sense” to offer customers a cheaper option.

Read more: Netflix announces ‘Stranger Things’ spin-off

The offer has great profit potential for Netflix as it helps attract more users. In an effort to attract more subscribers, Netflix has increased spending on content, especially originals. To pay for this, the company raised the prices of its services. Netflix said these price changes help boost revenue but are partly responsible for the loss of 600,000 U.S. and Canadian subscribers in the most recent quarter.

Over the past few months, Netflix has been polling potential partners, including Google and Comcast, as it prepares to launch the next tier before the end of 2022.

Unlike Google, which owns YouTube, and Comcast, which owns NBCUniversal’s Peacock, Microsoft doesn’t operate a streaming service that competes with Netflix.

Peters said the ad campaigns are still in “the very early stages” and “there’s a lot more to come”.

On Tuesday, Netflix plans to release its quarterly earnings report. The company had previously warned that it could lose 2 million subscribers in the second quarter. Netflix shares are down over 70% since the start of the year.

The new business is a boon for Microsoft’s advertising division, which generates 6% of the software company’s total revenue.

Search engine Bing, where Microsoft earns revenue by displaying ads in search results, is not as popular as Alphabet’s Google, and in 2015 Microsoft pulled out of the display ad market when Aol took over the division.

— Sarah Whitten of CNBC, Jordan Novet and Alex Sherman contributed to this report.

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