Netflix, the popular streaming service, is taking a step back to reevaluate its advertising partnership with tech giant Microsoft, preparing for an anticipated decline in ad prices, according to a report in the Wall Street Journal published on Thursday.
The restructuring comes following the firm’s introduction of a lower-priced ad-supported subscription plan last year which was met with a disappointing response in terms of growth.
Moreover, the move corresponds with the streaming company’s effort to attract customers to its $7-per-month subscription plan. The plan, which embedded commercials in the content, was introduced in 12 different markets across the globe, including the United States. For this enterprise, Microsoft was selected as Netflix’s technology and sales partner, largely thanks to its agreed-upon revenue guarantee.
However, the failure to achieve anticipated ad tier growth rates is causing the streaming giant to reconsider the financial facets of the agreement. The media company is contemplating cutting down on the revenue guarantee with Microsoft according to the report. There is an undercurrent of dissatisfaction among Netflix executives over Microsoft’s inability to sell as much ad inventory as originally expected.
Adding to this, Netflix has started preliminary discussions with other potential partners for selling ads. Promising these partners better deals, Netflix seems to be shopping around to find options beyond just Microsoft.
This shift could potentially bring more variety in advertisement sales strategy for Netflix.
The restructuring plan also comes with a knock-on effect on the cost of advertising. Advertisers are now agreeing to pay Netflix roughly between $39 and $45 per 1,000 viewers, as per recent deals. This marks a significant drop from the previously standing rate of about $45 to $55 per deal, as acknowledged by ad buyers.
While this ongoing recalibration poses a shift in Netflix’s business strategy, how it will play out in the long term remains to be seen.