Netflix partners with Microsoft on ad-supported subscription plan

Netflix has named Microsoft as a partner for its ad-supported service, the companies announced Wednesday.

“Microsoft has the proven ability to meet all of our needs as we build a new ad-supported offering together. Most importantly, Microsoft has provided the flexibility to innovate over time on both the technology and sales side. , as well as strong privacy protections for our members,” Netflix Chief Operating Officer Greg Peters said in a statement.

The “Stranger Things” streamer, which is struggling to retain and add subscribers, announced in April that it plans to roll out an ad-supported tier after years of resistance to the move.

Co-CEO Reed Hastings has long been opposed to adding ads or other promotions to the platform, but said on the company’s pre-recorded earnings conference call that it “makes a lot of sense to offer customers a cheaper option.

Read more: Netflix announces ‘Stranger Things’ spin-off

The offer has a lot of profit potential for Netflix as it works to sign up more users. In an effort to attract more subscribers, Netflix has increased its spending on content, especially on Originals. To pay for it, the company raised the prices of its service. Netflix said these price changes helped boost revenue but were partly responsible for losing 600,000 subscribers in the United States and Canada in the last quarter.

Netflix has interviewed potential partners over the past few months, including Google and Comcast, as it prepares to launch the tier before the end of 2022.

Unlike Google, which owns YouTube, and Comcast, which owns NBCUniversal’s Peacock, Microsoft does not operate a streaming service that competes with Netflix.

Peters said publicity efforts were still in the “very early days”, with “a lot of work to do”.

Netflix is ​​expected to release its quarterly results on Tuesday. He previously warned that he could lose 2 million subscribers in the second quarter. Shares of Netflix have fallen more than 70% since the start of the year. The company’s stock rose more than 1.5% on Wednesday afternoon on an otherwise down day for markets, after June inflation data came in higher than expected.

The new business is a boon for Microsoft’s advertising division, which contributes 6% of the software maker’s total revenue.

The Bing search engine, where Microsoft generates revenue by displaying advertisements in search results, is not as popular as Alphabet’s Google, and in 2015 Microsoft exited the display advertising market while Aol took over this unit.

—CNBC’s Sarah Whitten, Jordan Novet and Alex Sherman contributed to this report.

Lance B. Holton