The Netflix logo is seen on a television remote control, in this Jan. 20, 2022, file photo.
Dado Ruvic | Reuters
Netflix has named Microsoft as its partner for its ad-supported service, the companies announced Wednesday.
“Microsoft has a proven ability to support all of our needs as we build a new ad-supported offering together. More importantly, Microsoft offered the flexibility to innovate over time in both technology and sales, as well as strong privacy protections for our members,” Netflix COO Greg Peters said in a statement.
The “Stranger Things” streamer, which has struggled to retain and add subscribers, announced in April that it plans to launch an ad-supported tier after years of resistance to the move.
Co-CEO Reed Hastings has long opposed 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’ spinoff
The offer has big 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 originals. To pay for this, the company raised the prices of its service. Netflix said those price changes helped boost revenue but were partly responsible for the loss of 600,000 subscribers in the U.S. and Canada last quarter.
Over the past few months, Netflix has been interviewing potential partners, 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 rival streaming service to Netflix.
Peters said the advertising effort is still in the “very early days,” with “a lot of work to do.”
Netflix is scheduled to release quarterly earnings on Tuesday. The company previously warned it could lose 2 million subscribers in the second quarter. Shares of Netflix are down more than 70% since the start of the year.
The new business is a boon for Microsoft’s advertising division, which contributes 6% of the software company’s total revenue.
The Bing search engine, where Microsoft collects revenue by showing ads in search results, is not as popular as Alphabet’s Google, and in 2015 Microsoft exited the display ad market as Aol took over that unit.
— CNBC’s Sarah Wheaton, Jordan Novett and Alex Sherman contributed to this report.
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