Netflix confirmed this week that it will introduce a lower priced subscription tier that is ad-supported (in addition to its ad-free offer), promising media buyers “a better-than-linear TV brand experience”. Microsoft will be the global advertising technology and sales partner, with all Netflix ads to be served exclusively through the Microsoft platform.
Greg Peters, Chief Operating Officer and Chief Product Officer at Netflix, explains: “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.
“It’s very early days and we have much to work through. But our long-term goal is clear. More choice for consumers and a premium, better-than-linear TV brand experience for advertisers. We’re excited to work with Microsoft as we bring this new service to life.”
Microsoft completed its acquisition of Xandr and its a data-enabled technology platform and solutions in June, strengthening its ad-tech stack. Mikhail Parakhin, President, Web Experiences at Microsoft, says, “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. This is a big day for Netflix and Microsoft. We’re excited to offer new premium value to our ecosystem of marketers and partners while helping Netflix deliver more choice to their customers.”
This deal combines a truly global television service with a single ad-tech stack (and sales house) and so accelerates the globalisation of TV advertising. It creates an ‘easy-to-buy’ premium digital video offer at a scale that few others can match. Disney (with its international roll-out of an ad-supported Disney+ tier) and NBCUniversal, which has created a single buying point for global (as well as local and national) campaigns through its One Platform, are obvious competitors in this ‘global TV’ advertising reach race.
The decision by Netflix to use a single global sales company rather than local representation by existing media sales houses cements the idea that Netflix is still something of an outsider in the TV business (local third-party representation would have blurred the lines between the concept of Netflix as the challenger versus the incumbents, in the same way that the bundled apps onboarding packages with Pay TV operators has made Netflix a ‘friend’ of those companies).
But Netflix has the eyeballs, and the media buyers are going to knock on their door whatever, so the only question is whether Microsoft has the know-how to maximise value for Netflix in local markets.
This deal also jettisons Microsoft into a shortlist of the most important TV ad-tech and sales companies on the planet, and marks something of a comeback in the TV space after the company sold off its IPTV platform/UX business after once dominating the service delivery market for telcos deploying TV-over-DSL services.
In their statement, Netflix treats the introduction of ads as if it was a formality, but even in April they were (at least in public) only considering it, rather than fully committed. So this marks the official announcement that Netflix is open for advertising.
This is the company that led the SVOD market by championing the UX virtues of an ad-free television life. But having hit a ceiling on subs growth, an ad-funded tier could tap a wider potential market for Netflix – and it provides a step-down option for fans of the service who are simply short of cash, before they cancel a subscription altogether.
This move will delight marketers and TV buyers – who view Netflix as a premium and brand-safe environment and now one where they can find consumers who are not watching linear broadcast TV (and consumers who do not frequent ad-funded BVOD or other AVOD).
Buyers have wanted this for a long time. As you can see from this 2016 story, they were ready for Netflix then, and they were already fretting about how SVOD might deny them audiences and so drive media inflation. And that was before Netflix became one of the world’s largest investors in original content.
This is a landmark moment. It is more evidence that streaming will not in fact change the long-established economics of television, which requires advertising to support a good chunk of all content creation and delivery.