Netflix's ad-supported tier comes closer as it teams up with Microsoft

Netflix has announced that it will be teaming up with Microsoft as it gears up to launch an ad-supported subscription tier on its platform. 

The streaming giant has spent the last three months ramping up its plan to add a ad-supported cheaper subscription tier, and has met with the likes of Google, Roku, and Universal's parent company Comcast as part of its search for a partner in that process. Now it's settled on Microsoft. 

Announcing the move, Microsoft described itself as "Netflix's technology and sales partner", and revealed that "Marketers looking to Microsoft for their advertising needs will have access to the Netflix audience and premium connected TV inventory. All ads served on Netflix will be exclusively available through the Microsoft platform."

Netflix's Chief Operating Officer Greg Peters said: "Microsoft has the proven ability to support all our advertising needs as we together 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."

Still no rollout date

The announcement did not specify a date when the new tier might launch, or even outline an ambition, with Peters adding "It’s very early days and we have much to work through. But our long-term goal is clear: More choice for consumers and a premium, better-than-linear TV brand experience for advertisers. We’re excited to work with Microsoft as we bring this new service to life.”

The process of launching an ad-supported tier for Netflix has been conducted at lightning speed. At the start of March the streamer's Chief Financial Officer Spencer Neumann was asked about the prospect of an advert-supported tier, and he would only go as far as to say that he could “never say never”, before swiftly adding that it was "not something in [the brand’s] plans right now."

Cut to the end of June, and Netflix's Co-CEO Ted Sarandos confirmed that an ad-supported tier is coming and explained that the streaming giant needed to appeal to a new range of customers, adding: "We’ve left a big customer segment off the table, which is people who say: ‘hey, Netflix is too expensive for me and I don’t mind advertising. We're adding an ad-tier, we’re not adding ads to Netflix as you know it today. We’re adding an ad tier for folks who say ‘hey, I want a lower price and I’ll watch ads.'”

As we said above, there's no rollout date for this new subscription tier as yet, but, if previous reports are accurate, it will be before the end of 2022.

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Analysis: Why can't Netflix build its own platform?

Simply put, it doesn't have time. Netflix needs more cash and it needs it now. 

In the same on-stage interview in which he confirmed plans for an ad-supported tier, Sarandos confirmed that Netflix executives have an ambition to build the streamers' own platform, saying "...if it becomes so important that we want to have control over it, then we might.”

But developing, building, testing and rolling out a bespoke advertising platform for a streaming service that's available in 190 countries could take years of work. Netflix doesn't have that time. 

Netflix is looking to shore up revenue after it was announced in late April that it had lost 200,000 subscribers since the start of 2022, and, as a result, saw its value fall by more than $70 billion. 

Its next update on subscriber numbers is due next week and another drop – in the region of two million – is anticipated. If the company's subscribers numbers keep dropping, its share price will keep going down. 

Netflix shares peaked at just over $700 in November 2021, but they currently sit at $176.56. Anything the company can do to reverse that slide and attract new investors will be welcome – and partnering with Microsoft, a truly worldwide proposition with an advertising platform that can slot straight in to Netflix's streaming operation, feels like an easy win. 

Now it's just a case of how fast the two companies can roll it out. 

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