Microsoft getting cozy with ad tech with Netflix is probably just the first chapter in the story (Photo by … [+] Jakub Porzycki/NurPhoto via Getty Images)
As Netflix suffered scandalous cracks in its fortunes following the pandemic, it turned to Microsoft last month to form a partnership for the launch of a new ad-supported subscription plan. That Microsoft (gaasssp!) was the high-tech choice for an ad tech partner was a move that, with breathless reports, seemed to surprise everyone. But it shouldn’t have surprised anyone.
While Netflix could have chosen other partners, it turned to Microsoft because, as I reported here recently, it had been quietly assembling an ad-tech behemoth for years. And the Netflix deal is an endorsement of Microsoft’s resurgence as a high-tech competitor in the lucrative advertising world. After all, one could think of more than a few other potential ad tech partners that Netflix could have chosen.
Getting into the advertising business was a logical next step for some of the most premium and worthy content on the Internet. And what could be more sensible than finally making the world’s largest streaming audience available to brands. The sellers licked their lips! Oh the data!
It was definitely a move that needed to be made. Netflix announced that it lost subscribers in the second quarter of this year, but those losses were less than expected and the company is still minting many traditional currencies: net profit was $1.44 billion, up 6.5% up from $1.35 billion the previous year. The company also expects a gain of 1 million subscribers in the next quarter.
The giant, industry-changing Microsoft/Netflix ad alliance, with the new ad-supported subscription model slated to arrive in early 2023, could re-ignite Netflix’s streaming and Microsoft’s growth rocket in the market advertising, while providing a wealth of opportunity for the intrepid brands that get there first. Here’s why:
They can set the bar high for quality ads. Netflix has one of, if not the most, valuable inventory in the world of video advertising. Microsoft’s Xandr has the full ad tech stack — an ad exchange and ad server in addition to its DSP — so Netflix can make direct bids or expand into programmatic when the time is right. Either way, going with Microsoft is meant to send a signal that ads will be premium and more personalized.
They are not competing with each other (yet). Unlike others who might have been obvious candidates to monetize Netflix’s ad inventory, Microsoft won’t be competing to push its own video inventory. Comcast’s NBCUniversal operates the Peacock streaming service while Google owns YouTube. All of this means more streaming competition than ever before.
Both are very global. A whopping 147 million of Netflix’s 222 million subscribers live outside of North America. Microsoft is a global partner that can serve Netflix’s ad technology needs and sell Netflix ads in all markets around the world.
Both can continue to wear the cloak of privacy. Netflix is notoriously secretive about its data, not sharing audience statistics even with show creators. And Xandr (the proprietary data-focused shopping platform that Microsoft bought from AT&T) has a history of touting its focus on protecting marketers’ information. So now that Microsoft is also crossing over and selling ads, it can trade on the perception that it has a strong dedication to privacy, especially in markets where government scrutiny is growing (like the EU). Also, Microsoft’s Windows is ubiquitous in government offices, giving it something of a home advantage.
The duo could deal the death blow, or at least mortally wound, traditional television. At the Q2 results announcement this July, Netflix CEO Reed Hastings declared (again) that linear TV would be dead in “5 to 10 years.” Linear TV is really in trouble, and the traction Microsoft has through Xandr alongside traditional TV could help Netflix quickly set up traditional TV advertisers to buy its inventory. And as Shelly Palmer points out, “If Netflix or another streaming service or service group acquires exclusive rights to the NFL in 2031 (which we will know in 2029), then Reed is absolutely right: linear TV will die an accelerated death (but the death still painfully slow… one full of reruns of very old shows.” Ouch.
There is a lot of speculation that the Microsoft/Netflix deal is a precursor to an acquisition, which would suit Netflix’s gaming ambitions very well (remember that Microsoft is close to completing its deal to buy Activision).
Whatever the case may be going forward, the opportunities for brands and advertisers with Netflix now that Microsoft has become a dominant ad tech partner/seller/ad buyer are nothing short of game-changing. Enterprising brands will be smart to realize this early. Netflix still has the most watch time of any streaming service (1.33 trillion minutes from September 2021 to May 2022) and has a slew of new (and proven) exclusive content in the works like Squid Game, Stranger Things and Bridgerton which are a big draw. for a loyal loyal audience. And that, as they say, is priceless.
