Düsseldorf Netflix’s plans for an ad-supported subscription option are becoming concrete. The streaming service has now chosen Microsoft as its technology and distribution partner. The software giant has all the necessary skills for this, wrote the Netflix manager responsible for the operational business, Greg Peters, on Wednesday night in the entertainment group’s blog.
Netflix is under pressure. Although the streaming pioneer is the market leader with over 221 million subscribers worldwide, growth is increasingly slowing down. This changes the previous business model, which is based on paying customers.
But when the quarterly figures were presented at the end of April, the company had to accept a decline in the number of subscribers for the first time in more than a decade: the customer base shrank by 200,000.
For the second quarter, Netflix even expects a decline of two million customers. The exact figures will be presented by the US group next Wednesday. The Silicon Valley company has lost two-thirds of its stock market value since the fall. Because Netflix has to fight with more and more new competitors, and the market penetration is so high that further growth is becoming more difficult.
In response to the weak growth, Netflix CEO Reed Hastings announced in the spring that he would introduce an ad-supported subscription model. This is a novelty for the provider. For a long time, the manager was against an advertising-based tariff.
For him, the advantages of a simple pricing model had outweighed, he said. However, he also allows himself to be changed in his opinion. Apparently, this has happened, Netflix is planning to offer another, cheaper tariff, for which customers will have to put up with advertising.
Netflix’s competition also relies on advertising
Thus, Netflix could attract new users for whom a subscription is too expensive so far. For more than 80 percent of respondents, advertising would not be a reason to cancel their Netflix subscription, according to a recent study by the strategy consultancy Simon-Kucher & Partners.
Netflix would follow the example of the competition. Disney had already announced at the beginning of March that it would introduce a cheaper, ad-supported subscription model internationally by 2023.
“We are still at the very beginning and still have a lot to clarify,” wrote Netflix MANAGER Peters. CEO Hastings said in the spring that the rollout would take one to two years. Observers expect it to go faster.
For Netflix, the project is not trivial. Competitors such as Disney or HBO have their own marketing opportunities, for example from linear television. Netflix lacks this know-how, which is why it is now cooperating with Microsoft.
According to reports, Netflix had also considered Youtube parent Google and NBC network owner Comcast as technology partners for the ad version.
Microsoft generates more than ten billion US dollars in revenue from advertising every year. The company is the fourth largest provider of digital ads. Most of the sales are made through the search engine Bing and job postings on the career network LinkedIn. Microsoft CEO Satya Nadella described the partnership as a first step towards building an advertising network that supports a broader group of media companies.
