Netflix in partnership with Microsoft on the new level of ad-supported streaming

Netflix revealed today that it is partnering with Microsoft to launch its new ad-supported subscription plan.

“In April, we announced that we would be offering a new low-cost ad-supported subscription plan in addition to our existing ad-free Basic, Standard and Premium plans. Today we are pleased to announce that we have selected Microsoft as our global advertising and sales technology partner, ”said Greg Peters, Chief Operating Officer and Chief Product Officer.

Depressed Netflix shares rebounded on the news, rising 2% to around $ 180.

The ad-supported service launched seconds after last quarter’s earnings announcements from co-CEOs Reed Hastings and Ted Sarandos. The streaming king dazzled Wall Street with subscriber losses in the first quarter and expects even greater losses in the second quarter at the end of June, reducing the company’s value by more than two-thirds. The response to the service, which has always led the field in rejecting the idea of ​​advertising (Hastings often cited privacy concerns and a desire to avoid corporate headaches like Facebook’s), left investors baffled.

Now that it’s about to launch with ads, the mood on the street may be changing. Executives are expected to provide some details on the new levels and streaming status when the company releases its second quarter financial results next Tuesday. Many questions remain unanswered about what the ad experience on Netflix will be like, as Peters acknowledged, saying, “It’s early days and we have a lot to do.”

The increased competition, which has plagued the company in recent quarters in the United States, could explain the change in attitude. Disney plans to introduce a cheaper, ad-supported version of Disney + in the coming months, with HBO Max adding one in mid-2021. NBCU’s Peacock has a free plan with ads and a subscription with ads.

“Microsoft has a proven track record of supporting all of our advertising needs as we build a new ad-supported offering together,” said Peters. “More importantly, Microsoft has offered the flexibility to innovate over time in both technology and sales, as well as strong privacy protections for our members.”

Microsoft CEO Satya Nadella said the company was “thrilled to be named Netflix’s technology and sales partner in this new offering” and that it has been a “big day for Netflix and Microsoft.”

Microsoft’s selection follows talks with other major ad-supported streaming players, including Roku, Google, and NBCUniversal. While Microsoft has not historically been known as an ad-driven entity, it recently acquired AT&T Xandr’s ad technology operation and also earns significant revenue from ads on search engine Bing and the social network LinkedIn. In its latest quarterly earnings report from last April, Microsoft said its search and news advertising revenue increased to $ 2.9 billion in the quarter, from $ 2.4 billion a year ago. LinkedIn ad revenue increased 61%.

A senior streaming executive not affiliated with either company noted that Netflix has recently stepped up its efforts in video games, a space that Microsoft has successfully expanded with Xbox. Microsoft has also proposed to take over game publishing giant Activision Blizzard, but regulators are still reviewing the $ 69 billion cash deal. “This partnership has a greater impact than just advertising,” the executive said.

Ded Hayes contributed to this report.