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Netflix Collaborates with Microsoft for Ad-Supported Subscription Plan

  • Netflix partners with Microsoft for ad-supported subscription plan
  • The move comes after the company reported its first loss of subscribers in more than a decade in 2022
  • The partnership will help the company in the growth of its subscription base and enable it to generate a new stream of revenue

Streaming giant Netflix partnered with Microsoft for its new ad-supported subscription plan. Netflix will now offer a lower-priced subscription plan that will show advertisements on its platform. The ad-supported subscription plan will be an addition to the existing plans that do not include advertisements. After the announcement, the share price of Netflix rose 2% to $178.06.

Strategic Intent

Advertisements were never a priority for Netflix, and its business strategy was based on monthly subscriptions. The ad-supported subscription move comes after the company reported loss of subscribers first time in more than a decade and laid off hundreds of employees in 2022. It lost 200,000 subscribers during January–March. The revenue growth of the company slowed down significantly due to sharing of accounts by a large number of users, and stiff competition from streaming companies such as Amazon Prime, Walt Disney Co, and Hulu. The new ad-supported subscription plan will help Netflix boost subscription growth and generate a new stream of revenue.

Ad-Supported Streaming Services

Both ad-supported and subscription-based streaming services are expanding. However, due to more reasonably priced subscription plans and with consumers becoming more cost-conscious, ad-supported streaming services are becoming popular. Many streaming platforms such as HBO Max, Peacock, Hulu, and YouTube Music offer ad-supported plans. A similar business strategy is used by Spotify, which offers music free of cost in exchange for watching advertisements on its platform.

Microsoft in Digital Advertising Segment

Microsoft reported $8.5 billion in search-related advertising segment revenue in 2021, mostly through its search engine Bing. The advertising division of Microsoft, which accounts for 6% of the company's revenue, will benefit from the new partnership with Netflix. The company recently acquired digital ad business Xandr from AT&T Inc., which gave Microsoft the technology to become a contender in the high-profile race to win the Netflix partnership. The partnership offers an opportunity for both companies to capitalize on their synergy.

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