Netflix picks Microsoft to power ad-supported tier

Netflix has selected Microsoft as its global advertising technology and sales partner to build its ad-supported offering, bringing an end to one of the year’s hottest partnership contests. 

Microsoft will have exclusive rights to Netflix inventory as part of the deal. 

In a blog post announcing the news, Netflix chief operating and product officer Greg Peters said Microsoft “has the proven ability to support all our advertising needs” and that it offered “strong privacy protections” and the flexibility to innovate over time.

Peters noted that it was “very early days” in the partnership but added that Netflix’s long-term goal is to offer a “premium, better-than-linear TV” brand experience for advertisers. 

The streaming giant first revealed plans to introduce advertising to its service in April — following years of resistance — as it reported its first-ever fall in subscribers. Netflix CEO Reed Hastings told investors that introducing a low-cost ad-supported tier would help the service increase its price spread and meet consumer expectations.

Netflix has been shopping for a partner to integrate an advertising layer into its services since. 

It was rumored to be eyeing an acquisition of streaming device manufacturer Roku in early June, which industry observers suggested was related to its hunt for ad technology. Roku has built a comprehensive ad platform and makes the vast majority (88% in Q1) of its revenue from ad sales and content distribution.

Microsoft’s president of web experiences Mikhail Parakhin said in a blog post it was “a big day for Netflix and Microsoft.” 

Microsoft made $10 billion in ad sales in 2021 and beefed up its offering at the close of the year when it acquired Xandr, AT&T’s ad business. 

Mike Woosley, COO at data management firm Lotame, said that Microsoft’s combination of media, advertising, demand-side and digital trafficking technologies with its cloud-based application space gives it “every ingredient Netflix needs to stand up this ad-supported tier.” 

The news has left industry observers wondering whether the deal could be a precursor to Microsoft buying Netflix. Vikrant Mathur, cofounder of AVOD publisher Future Today, said: “It would be interesting to see if, over the long term, Netflix builds its own ad stack and capabilities in parallel or simply outsources the job to Microsoft. Is this the first step towards a Microsoft acquisition of Netflix?”

Netflix co-CEO Ted Sarandos told an audience at Cannes that while the company was searching for an ad partner, he hopes to eventually inhouse its ad operations.