During the pandemic, when people were stuck in their homes, they turned to streaming services to alleviate their boredom. It helped that major ad services were ad-free and allowed the occasional binge. But all that is set to change, as Netflix ad-supported offerings will soon be a thing.
On July 14, the streaming giant informed the world about the Netflix and Microsoft deal, which will make way for an ad-supported subscription, in addition to its existing ad-free basic, standard, and premium offerings. In an attempt to attract more customers, after facing slower-than-expected growth, Netflix announced plans to launch a cheaper subscription plan showing advertisements in April.
Why Netflix chose Microsoft?
The Netflix ad-supported model has been in the works for over three months, with the media company approaching the likes of Google, Roku, and Comcast for a potential partnership.
In a written statement, the company explains that the ad-supported subscription will receive due support only from Microsoft. Netflix COO Greg Peters stated, “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.” All ads served on Netflix will be exclusively available through the Microsoft platform.
The Netflix ad-supported offering will make the streaming service accessible to cash-strapped consumers. It will also pave the way for advertisers to provide a better brand experience. As inflation drives up the cost of living, entertainment services are struggling to capture markets.
In April, for the first time in a decade, Netflix reported that it had lost subscribers and expected the trend to continue, sending Wall Street into a tizzy. The announcement resulted in a drop in its share price, and the stock fell nearly 20% when traders realized that it had lost 200,000 subscribers globally during the first quarter.
Meanwhile, Wall Street was expecting the streaming giant to add 200,000 subscribers. Netflix executives then announced that they were open to considering a Netflix ad-supported model, while CEO Reed Hastings has always opposed such a service.
The company blamed the decline on factors like Russia’s invasion of Ukraine, rising costs, increased competition, and password-sharing. The decision to pull out of Russia cost the media firm nearly 700,000 new subscribers. The Bridgerton producer also announced a crackdown on password-sharing consumers in Chile, Costa Rica, and Peru, and is expected to slowly roll out the scheme globally.
The decline severely impacted Netflix’s paid global subscriber base, bringing it to 221.6 million, down from 221.8 million in the previous quarter. The company made $1.6 billion in profit over the quarter on $7.8 billion in sales. Its shares have dropped by nearly 70% year-to-date.
Netflix Forecast
Recently, Netflix increased its prices across the US and Canada as it has increased spending on original titles. In the last earnings report, the company announced that it expected to lose around 200,000 customers in the second quarter.
The company’s stock was up more than 1.5% on July 13, after June inflation data came in higher than expected. The streaming giant is slated to announce its second quarterly results on July 19.
The Netflix and Microsoft deal is a boom for the software giant, which generates 6% of its income from the advertising division.
On the other hand, netizens did not seem pleased with the announcement, with many taking to Twitter to voice their grievances. Some even threatened to cancel their subscriptions if they have to pay more for ad-free services.
