Netflix offers new details on Microsoft ad tier partnership in earnings call

Netflix reveals details on Microsoft ads deal

Netflix’s much-anticipated ad tier, in partnership with Microsoft, will launch in early 2023.

In the streaming giant’s earnings call, co-CEO Ted Sarandos stated that the ad tier will not support all content on Netflix at launch, but will instead contain the “vast majority” of its library as the company pursues additional content clearance rights.

Chief operating officer and chief product officer Greg Peters mentioned that the launch strategy will begin with “countries that have sort of the more mature ad markets and we feel more confident in the ad monetization”, before then exploring introducing ads to other countries over time.

Peters reiterated the exclusivity of the deal with Microsoft, with all ads served on the tier coming from the tech corporation.

“They’ve got a technical capacity, which is complementary to ours a go-to-market capacity, which we need to leverage, and it will be very important for us,” added Peters.

“But a key component of what we liked about this partnership was that there was sort of a flexibility in that innovation orientation […] And so they very much, I think, are approaching this as an opportunity to work together to collaborate and to sort of evolve both the technical capacity and also sort of what the experience is and what the go-to-market approach is.”

Potential innovation in partnership with Microsoft was alluded to as wide-ranging, from trying to “create a new ads ecosystem around premium TV, connected TV ads,” to evolving beyond advertising into cloud, gaming, and more over time.

Netflix has begun investing into gaming more this year, acquiring several mobile video game developers.

Regarding the tier, Peters said that Netflix is aware that “there’s price sensitivity around consumers” but described the ad tier in opportunistic terms, calling it “expansive from a member reach perspective, but also neutral to positive on the unit economics and monetization.”

Peters added: “[T]he initial response that we’re getting from a brand and an advertiser perspective is quite strong. So we feel quite confident that as we sort of grow into this and we have more subscribers over time on these plans, that at least initially the unit economics are going to be — are quite good.”

Stock rises despite 970k subscriber loss

In its Q2 earnings, Netflix reported subscriber losses of 970,000, lower than the 2 million the company projected last quarter. It marks the second straight quarter of losses after Q1’s surprising first-in-a-decade 200,000 loss.

The streaming giant reported revenue of $7.97bn in Q2 versus $8.04bn expected and earnings per share of $3.20 versus $2.94 expected.

Netflix’s stock rose nearly 7% in after-market trading on the news.

The streaming company is seeking to achieve additional revenue outside of advertising in the near future by cracking down on, and monetizing, password sharing. On Monday, Netflix announced it would be trialing a new “add a home” feature in several Latin American countries, wherein users can pay an extra $2.99/month to add an extra home under their Netflix plan. Netflix previously began testing a similar “add extra member” feature in March.

Netflix also announced it had acquired Animal Logic, the animation and visual effects studio behind The Lego Movie (2014) and Happy Feet (2006).

Looking into Q3, Netflix has projected a 5% revenue increase, which would amount to 12% year-on-year growth from Q3 2021.

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