Netflix Teaming With Microsoft On New Ad-Supported Streaming Tier

Dade Hayes contributed to this report.” />
The streaming king blindsided Wall Street by losing subscribers in Q1 and anticipates even bigger losses in the second quarter ending June, which has slashed more than two-thirds of the company's value. The ad-supported service had a tortured start in a sideways announcement by co-CEOs Reed Hastings and Ted Sarandos on last quarter's earnings call. The about-face by the service, which had always led the field and refused to entertain the idea of advertising (Hastings often cited privacy concerns and a wish to avoid Facebook-style corporate headaches), spooked investors.
Microsoft CEO Satya Nadella said the company is ‘thrilled to be named Netflix’s technology and sales partner” in the new offering, calling it “a big day for Netflix and Microsoft.”
Disney plans to introduce a cheaper, ad-supported version of Disney+ over the coming months. Competition, which has bedeviled the company in the last few quarters in the U.S., may help explain the change of heart. Execs will give some details on the new tier and the state of streaming when the company reports its second quarter financials next Tuesday. Many questions remain unanswered about how the advertising experience will look and feel on Netflix, whose execs have been surprisingly willing to cite other companies' success as a reason to jump in. Now that it's on track to roll out with ads, the sentiment on the Street may change.
Netflix revealed today that’s it’s teaming up with Microsoft to launch its new advertising-supported subscription plan.
Today we are pleased to announce that we have selected Microsoft as our global advertising technology and sales partner,” said COO and Chief Product Officer Greg Peters. “In April we announced that we will introduce a new lower priced ad-supported subscription plan for consumers, in addition to our existing ads-free basic, standard, and premium plans.
Netflix' depressed stock got a bump on the news, rising 2% to about $180.
“Microsoft has the proven ability to support all our advertising needs as we together 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."
We’re excited to work with Microsoft as we bring this new service to life,” Peters said. “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.
Microsoft has also proposed taking over Activision Blizzard, but that $69 billion all-cash deal is still being reviewed by regulators. "This partnership has bigger implications that just advertising," the executive said. One senior executive in the streaming sector who is unaffiliated with with either company noted that Netflix has recently ramped up its efforts in video games, a space Microsoft successfully expanded into with the Xbox.
In its most recent quarterly earnings report last April, Microsoft said its search and news ad revenue rose to $2.9 billion in the quarter, from $2.4 billion in the year-ago period. While Microsoft isn't principally known as an advertising-centric entity, it did recently acquire ad-tech operation Xandr from AT&T and also reaps significant proceeds from ads on search engine Bing and social network LinkedIn. The selection of Microsoft followed reports of talks with other major players in ad-supported streaming, including Roku and NBCUniversal. LinkedIn ad revenue jumped 61%.

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