Netflix relies on Microsoft for its ad-supported video service

Netflix has chosen Microsoft to help deliver the ads in a cheaper version of its video streaming service due to launch later this year with a pledge to minimize the privacy intrusions that often accompany digital ads.

The Alliance announced Wednesday marks a major step towards Netflix’s first foray into advertising after it has staunchly refused to include ads on its video streaming service since its inception 15 years ago. Netflix announced it would drop its resistance to ads three months ago after leaking it had lost 200,000 subscribers during the first three months of the year amid increased competition and rising inflation which put pressure on household budgets, leading management to realize that it was time to opt for a cheaper option.

Netflix has warned it will likely report even bigger subscriber losses for the April-June period, making it more urgent to roll out a cheaper, ad-supported version of its service to help reverse the tide. customer erosion. The decline has contributed to a 70% decline in its share price so far this year, wiping out about $190 billion in shareholder wealth and triggering hundreds of layoffs.

The Los Gatos, California-based company is expected to release its April-June numbers on July 19, but still hasn’t said when its ad-supported option will be available, except that it will roll out before 2023. Netflix’s announcement regarding the partnership with Microsoft also omitted crucial information: the anticipated price of the ad-supported option.

“We’re just at the very beginning, and we have a lot to do,” Netflix COO Greg Peters said in a post that also highlighted Microsoft’s “strong privacy protections.”

Landing the advertising deal with a video streaming service that has more than 220 million subscribers is a major blow for Microsoft, which has been engaged in a long and often acrimonious 20-year battle with Google, the dominant force in the digital advertising. .

“This deal gives Microsoft something its growing advertising business has been missing – quality streaming video inventory that has the potential to scale,” said Insider Intelligence analyst Ross Benes.

Mikhail Parakhin, president of web experiences at Microsoft, said the Redmond, Washington-based company was “thrilled” with Netflix’s choice. in a post it also underscored the company’s commitment to privacy.

While Microsoft still makes software that powers most of the world’s personal computers, Google has become increasingly powerful thanks to its dominant search engine, ubiquitous Android software for smartphones, and other popular digital services that have generated more than $200 billion in ad revenue last year – far more than any other network marketer.

But Google’s ad sales are heavily dependent on the personal information its mostly free services collect about their billions of users worldwide, a form of surveillance that Netflix obviously wants to avoid with business interruptions to its video service to reduce risks of alienation of subscribers. Google also owns video site YouTube, which already competes with Netflix for people’s attention and will soon be an advertising rival as well.

Microsoft may have had another factor in its favor as well. Netflix Inc. co-founder and co-CEO Reed Hastings served on the board of Microsoft Corp. from 2007 to 2012.