Netflix may be trying to lure subscribers back.
On Wednesday, the streaming service announced it is teaming up with Microsoft for a cheaper, ad-powered subscription option.
Mark Weinstein, a privacy advocate and founder of MeWe, a social media company, told Entrepreneur that, with this new agreement, Microsoft will essentially power the “background technology” used to bring ads to Netflix.
“This is a big contract, this is a big deal,” Weinstein said. “For the consumer, this looks to be a very good choice that Netflix made, in the interest in both of a good profitable partnership for both companies but also better, more granulated privacy protections.”
For years, Netflix leadership insisted the company would not bring ads to the platform. In a January 2020 earnings call, for example, Netflix CEO Reed Hastings said there was no “easy money” in advertising and there is plenty of existing competition, according to TechCrunch.
“We’ve got a much simpler business model, which is just focused on streaming and customer pleasure,” he said, per the outlet.
Netflix kept the content wheel churning by raising prices, Insider noted. But things shifted when Netflix reported a subscriber loss in April of 200,000 accounts in its Q1 2022 report.
The company’s next earnings call is Tuesday, and it previously said it will estimates it will lose 2 million subscribers in Q2. The company’s stock was trading at nearly $600 a share in January and is down to $175 as of Thursday morning— it has also laid off staff.
Research indicates consumers are likely interested in ad-supported, cheaper options and that Netflix is leaving money on the table without one — especially as consumers are squeezed by inflation and competitors proliferate.
Netflix had been looking at different candidates to support its ads business (Google, Comcast) but Microsoft stood out because it does not own a streaming competitor, CNBC reported.
“Microsoft has the proven ability to support all our advertising needs as we work together to 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,” Netflix’s Greg Peters, chief operating officer and chief product officer said in a statement.
