What this means: Netflix’s advertising initiative started off on the back foot, but partnering with an established firm like Microsoft will help ease concerns about the effectiveness of its ad offerings.

Despite years of anticipation, Netflix’s advertising announcement felt more like a rushed consolation for news that it had lost subscribers for the first time in a decade.
While Netflix had been historically resistant to advertising, younger streaming competitors had a significant head start over the streaming pioneer, having spent months or years fleshing out ad-supported tiers and partnering with measurement firms to bolster their ad businesses.
Netflix CEO Reed Hastings initially said an ad-supported tier could take “years” to implement, but the company quickly pivoted to a much more aggressive Q4 launch target after anxiety and criticism from advertisers and competitors mounted.
All that unease made Microsoft, with its broad advertising capabilities and solid reputation, an attractive partner to help the streamer get off shaky ground.

Privacy is king:

The ad-supported video gold rush is reaching a fever pitch at the same time that the advertising industry faces a privacy and addressability crisis. Both Disney and Netflix’s announcements directly confront those needs.
Privacy was the primary theme of Disney’s announcement, which focused on the combination of Disney’s privacy-oriented user data from Clean Room and The Trade Desk’s Unified ID 2.0 initiative to create a replacement for third-party cookies and other identifiers of old.
Netflix and Microsoft’’s announcements, though brief, both make mention of Microsoft’s “strong privacy protections for our members.”
But while Disney is entering the ad-supported streaming race well-prepared with data from Clean Room, Netflix’s data collection and targeting capabilities are less well known.
Microsoft’s adtech rise: Microsoft has invested heavily in its advertising business over the last year, and a partnership with a platform as prominent as Netflix could help it eat up a larger share of the digital ad market.

In December 2021, Microsoft acquired programmatic advertising company Xandr from AT&T in the hopes of creating a post-cookie ad marketplace that could address the conflicting needs of privacy and targetability.
The company’s Q1 earnings revealed that search and news ad revenues grew 23% to $544 million. Ads have started appearing in Windows 10 search and toolbars, and Microsoft is also looking to introduce ads to cloud gaming and free-to-play games across computers and Xbox consoles.
Those gaming efforts offer another overlap with Netflix’s interests. The streaming service has been fleshing out a gaming business that’s primarily focused on mobile games, but could find a comfortable partner in Microsoft should it attempt to make the jump to other platforms.
The big takeaway: After months of criticism, Netflix’s choice in Microsoft will go a long way to steady the waters around its ad-supported subscription tier while helping Microsoft solidify its position as a major player in digital advertising.

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