Netflix has named Microsoft as its partner for its ad-supported service, the companies announced Wednesday.
“Microsoft has the proven 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 in a statement.
The “Stranger Things” streamer, which has been struggling to retain and add subscribers, announced in April that it planned to implement an ad-supported level after years of resisting the move.
Co-CEO Reed Hastings has long opposed adding commercials or other promotions to the platform, but said during the company’s pre-recorded earnings conference call that “it makes a lot of sense” to offer customers a cheaper option.
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The offer has great earning potential for Netflix as it works to sign up more users. In an effort to attract more subscribers, Netflix has increased its spending on content, particularly originals. To pay for it, the company raised the prices of its service. Netflix said those price changes are helping to boost revenue but were partially responsible for the loss of 600,000 subscribers in the United States and Canada during the most recent quarter.
Netflix has been interviewing potential partners for the past few months, including Google and Comcast, as it prepares to release the level 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 publicity efforts are still in “early days,” with “a lot of work to do.”
Netflix is scheduled to release quarterly earnings on Tuesday. It had previously warned that it could lose 2 million subscribers during the second quarter. Netflix shares are down more than 70% so far this year. Shares of the company rose more than 1.5% in Wednesday afternoon trading on an otherwise bearish day for markets after June inflation data came in higher than expected.
The new business is a boon for Microsoft’s advertising division, which contributes 6% of the software company’s total revenue.
Search engine Bing, where Microsoft makes money by displaying ads in search results, isn’t as popular as Alphabet’s Google, and in 2015 Microsoft exited the display ad market when Aol took over that unit.
—CNBC’s Sarah Whitten, Jordan Novet and Alex Sherman contributed to this report.
