Netflix is building its advertising business and the streaming giant has signed Microsoft as its first ad tech partner. In April, Netflix surprised the world with the news that it plans to launch an ad-supported tier. Industry watchers were expecting that Netflix was close to picking an advertising platform to help it build the ad-supported tier of service.
Microsoft Advertising is the dark horse contender for the Netflix account and a positive surprise for the industry. Notably, other potential adtech partners such as FreeWheel or Google have interests competitive to Netflix’s. They both sit inside companies that have their own content plays on streaming TV. This likely knocked them out of the race.
Prior to its acquisition of Xandr, Microsoft was not even considered a serious programmatic competitor in the industry. As an early, dominant player in programmatic display advertising, Xandr (formerly AppNexus) started focusing on the TV/video ad space after being acquired by AT&T in 2018.
Xandr is well suited to build Netflix’s ad operation from scratch, a task that won’t be easy but isn’t new for the company. The ability to provide privacy, combined with an established ad tech stack and a strong ability to iterate quickly, helped Xandr push over the finish line. Greg Peters COO and CPO said,
“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. “
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Marketers looking to Microsoft for their advertising needs will have access to the Netflix audience and premium connected TV inventory. The Microsoft platform will be the exclusive provider of all Netflix ads.
In the future, a Netflix subscription with ads at a lower price may entice value-seeking customers. With Netflix entering the ad-supported streaming world (AVOD), advertisers will have access to a wide range of premium inventory.
As AVOD continues to expand, this partnership not only supports the momentum but also creates more competition in the field. The recent Disney partnership with the Trade Desk also gives advertisers access to more premium AVOD inventory.
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With Netflix getting into the AVOD market, the equation changes entirely for TV watchers who compare steep cable subscription fees with rising streaming costs.
CTV advertising is known for its chaos, consumer dissatisfaction, and controversy. Netflix has never faced any of these issues. The biggest challenge will be to maintain the balance between efficient monetization and retaining subscribers who are used to ad-free content.
The question of the hour: Does this partnership really push the envelope on ad innovation?
Certainly, Microsoft brings gaming to the table, where there are opportunities and innovation, but there is still much room for development. If It could be magic if these new partners are able to translate this kind of next-gen thinking into the more traditional streaming TV ad ecosystem.
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