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On Wednesday, Microsoft announced that it has been selected as the partner to Netflix to provide their upcoming ad-serving needs. The premise is that Netflix is going to provide an ad-supported subscription offering that’s a lower price point than their current rates.
Netflix has been under an increasing amount of pressure as more streaming services enter the market. Their market share is down to roughly 45% from 55% from this same time last year, according to TechCrunch. It didn’t help when Netflix pulled out of Russia and lost 700,000 subscribers. The competitive landscape is continuing to chip away at the behemoth. In terms of services, there are Netflix, Amazon Prime Video, Hulu, YouTube TV, Disney+, Apple TV+, ESPN+, Discovery+, HBO Max, and I’m sure there are more, but those are the ones that I can quickly think of off the top of my head.
Netflix has always been a subscription-based business. It started that way as a mail-in DVD rental service. However, with such sharp drops of market share, and more importantly to investors, share price, along with what seem to be new services popping up all the time, and sometimes dying (RIP CNN+), Netflix is having to make a drastic change to their model by adding advertising. They need to recoup lost customers and this is a way to do it.
Netflix COO Greg Peters put an announcement out the same day about the Microsoft partnership. He stated:
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. Today we are pleased to announce that we have selected Microsoft as our global advertising technology and sales partner.
Microsoft has the proven ability to support all our advertising needs as we work together to 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.
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. We’re excited to work with Microsoft as we bring this new service to life.
We’ll see how this all plays out. What does this mean for current Netflix subscribers? It may mean that you can get a subscription to your favorite shows, such as Stranger Things, but be prepared to be interrupted during a critical scene with an ad.
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Mark E. Chiles is the Founder of Overwrite Media and has an extensive two-decade career in progressive technology and digital media. He's been a speaker at several conferences related to digital marketing, media, and customer data. Connect with him on Twitter or on LinkedIn.