Netflix’s commercial-based subscription tier has only been up and running for about four months, but the streamer may already be making big changes to how it gives consumers their ads. The company is considering abandoning its current partnership with Microsoft in favor of building its own tech, according to a report from Digiday.
Under the current partnership with Netflix, announced in July 2022 four months before the launch of the tier, Microsoft’s technology serves as the backbone behind the commercials on the streamer. The deal between the companies will reportedly run for two years. When that happens, Netflix will likely abandon the plan in favor of a new approach, according to Digiday.
Potential new approaches for the streamer to support their spots for Best Western and Cadillacs include building its own in-house ad infrastructure. The streamer may also buy out Microsoft’s existing technology for the ads in order to own it outright. Top execs at Netflix are reportedly in discussions about these two options, in addition to potentially renewing the Microsoft agreement, and have taken on former Comcast chief product officer Jon Whitticom as an advisor for the deliberations.
The news comes as Netflix seeks to maximize profits from its ad tier, which was introduced as a way of bouncing back after a messy 2022 that saw decreasing subscriber numbers and falls in the company’s stock prices. Early estimates showed that the tier — a $6.99 per month plan with limited video quality that debuted with several titles on the service inaccessible due to licensing issues — had a weak start, accounting for only 9 percent of new signups in its first month and 0.2 percent of subscribers overall, making it easily the least popular plan for the streamer.
In February, Netflix reportedly informed its advertising partners that sign-ups doubled over the course of January compared to November, though it’s unclear what the actual number of subscribers on the ad tier is. Netflix reportedly estimated that the service would draw 1.75 million subscribers by the end of its first quarter of availability, roughly 2.4% of Netflix’s overall North American subscriber base.
Netflix isn’t the only one to launch an ad tier last fall, as fears of a looming recession increased. Disney+ launched a $7.99 monthly ad plan on December 8, accompanying a price hike on the streamer’s standard ad-free plan.
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