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Microsoft is chosen by Netflix as a partner for a cheaper service with advertisements

In a crucial move toward reviving subscriber and revenue growth, Netflix Inc. chose Microsoft Corp. as the technology and sales partner for its new advertising-supported streaming service.

By the fourth quarter of this year, Netflix intends to launch a less expensive, advertising-supported alternative to its primary streaming service. Ads will only be seen to clients upgrading to the higher tier; current users won’t see them.

The absence of advertisements has always been a key selling point for Netflix. However, sluggish development has compelled the business to explore for fresh approaches to draw customers and new revenue streams.

After reporting a decline in clients, the company declared in April that it would go into the advertising sector.

Netflix set a strict deadline for launching the service, so management has looked for an outside partner to handle sales and technology, at least initially. Chief Operating Officer Greg Peters met with prospective candidates like Google and Comcast Corp., both of which are owned by Alphabet Inc.

With its victory, Microsoft will take over as Netflix’s exclusive ad server and vendor. Netflix has 222 million customers and even more viewers.

Microsoft has the proven ability to support all our advertising needs as we work together to build a new ad-supported offering, Peters said in the blog post. 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. 

In New York, shares of Netflix increased by 1.2% to $176.56 at market close. The once-expansive stock has fallen 71% this year after the business forecast a 2 million subscriber drop in the recently finished second quarter. On July 19, Netflix releases its financial results. Microsoft didn’t really alter.

The advertising sector was taken aback by the selection of Microsoft. In terms of advertising technology and sales, Google and Comcast were previously regarded as front-runners and industry leaders. However, both businesses run video services that are rivals.

Microsoft acquired Xandr, AT&T Inc.’s advertising division, in December after recording $10 billion in advertising sales the previous year.

In 2018, AT&T effectively reinvented the division as an advertising business under the moniker Xandr, which was inspired by Alexander Graham Bell, after purchasing two ad tech firms, AdWorks and AppNexus.

According to Ari Paparo, who sold his advertising technology company to Comcast and later spent a few years working there, Xandr is a distant second in the field of video advertising.

Advertising is not exactly the first thing you think of when you think Microsoft, Paparo said. However, they are global, which matters a lot to Netflix. And they aren’t competitive, like Comcast or Google.

According to Dave Morgan, founder and CEO of Simulmedia, a TV and streaming ad-buying platform, Microsoft’s Xandr includes technology that automates selling and displaying commercials on a worldwide scale, which is vital if Netflix wants to debut spots in markets around the world.

According to him, the cooperation also makes sense because Netflix is looking into the video game market and Microsoft has invested heavily in it with Xbox.

I think it’s a smart move, Morgan said. I’s become pretty clear since they bought LinkedIn and Xandr that Microsoft has recommitted to the digital ad business.

It’s already difficult for Netflix to introduce advertising, and on Wednesday it provided few specifics about whether or how it intends to do so in original shows that were created and edited to be ad-free. Additionally, it must discuss the right to include advertisements in programs it licenses from other businesses, which could result in additional fees.

The decision as to whether they are okay with a new movie or series showing with advertising will need to be made by actors, producers, directors, and other media firms that agreed to work with Netflix while it was an ad-free service.

However, media leaders claim that Netflix has a big chance. With a client base of a few hundred million and a $17 billion programming budget, Netflix has the resources to grow a sizable company.

According to Kantar, Hulu, owned by Walt Disney Co., produced $2 billion in advertising revenue over the course of a year that concluded in September. Only the US is home to Hulu. According to Bloomberg Intelligence, Netflix could increase its revenue in the US and Canada by $1 billion to $3 billion with adverts.

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