Simply three months after Netflix stunned the world with the information that it plans to launch an ad-supported tier, the streaming chief has settled on its third-party vendor of alternative: Microsoft.
However why Microsoft?
Netflix’s alternative may appear unusual as a result of, though Microsoft Promoting (by one identify or one other, previously all grouped underneath the Bing model) has been round since 1997, Microsoft wasn’t thought of a critical programmatic contender till it purchased the longtime programmatic tech chief Xandr (née AppNexus) from AT&T – which was introduced in December of final yr however didn’t shut till final month.
For sure, the advert tech business was stunned. “Xandr has by no means been talked about in conversations with digital video leaders about what’s going to occur with Netflix,” mentioned Nicole Scaglione, international VP of OTT and CTV at PubMatic. Xandr has a deep basis in programmatic – it’s one of many oldest and largest SSPs – however given the brief integration window with Microsoft and the rise of different gamers in CTV, particularly, it was a darkish horse contender for the Netflix account.
“The standard top-of-mind suspects have been Google and FreeWheel,” she added.
Nonetheless, one thing made Microsoft stand out.
“It’s the advert tech big that doesn’t have a streaming library,” Scaglione mentioned. Google’s YouTube and YouTube TV, in addition to Comcast’s Peacock streaming service, compete immediately in opposition to Netflix. Bearing that in thoughts, she mentioned, “this [choice] makes a ton of sense in hindsight.”
Microsoft additionally has a robust place in gaming, because it owns Xbox and acquired Activision this yr. Netflix dove head-first into gaming final yr and has since acquired three gaming studios. Other than the pure recreation growth and distribution angle, Xbox is also a streaming platform the place customers can … drumroll … obtain and watch Netflix.
Microsoft’s acquisition of Xandr and its longstanding market maintain in console gaming mix to offer it an “wonderful place to ship brand-safe promoting [for Netflix],” mentioned Jeff Sue, GM of Americas at Mintegral. (Plus, it checks the field for non-interruptive content material.)
Eye of the storm
Whereas the partnership is smart (and Microsoft is probably going celebrating bottomless advert {dollars} in Aruba), stepping out into the AVOD house is not any stroll within the park.
Netflix has by no means needed to face any of the chaos, crudeness, client dissatisfaction or controversy that CTV promoting is understood for.
For one factor, “measurement is a large number,” Scaglione mentioned.
Deduplicated measurement and frequency management throughout streaming channels is without doubt one of the largest ache factors within the CTV ecosystem, and now it’s a problem that should preserve Netflix on its toes (if not up at night time).
“CTV measurement is way more fragmented than in cellular promoting,” Sue mentioned, referring to all the heated competitors amongst third-party suppliers. “This [fragmentation] has already created points for AVOD monetization.
The largest problem goes to be balancing environment friendly monetization with out turning away subscribers which are accustomed to ad-free content material.
“The easiest way to perform this steadiness is rigorous consideration to frequency administration,” mentioned James Brooks, CEO of performance-based advert change GlassView. “Making the viewer expertise top-of-mind is crucial precedence. [Netflix] doesn’t wish to lose an entire bunch of viewers from this,” he added, portending the potential friction when tens of millions of Netflix customers, a lot of whom don’t observe the advert business intently, may very well be horrified to find adverts on Netflix.
Netflix is avoiding this by making the ad-supported tier a brand new choice. All present subscribers are ad-free and should intentionally change to the cheaper tier with adverts (in order that they received’t be stunned however not delighted by the brand new adverts).
Microsoft, which transitioned from simply console-based gaming to shoulder its manner into digital and in-game promoting, is primed to assist Netflix ship a less-than-messy advert expertise. However Microsoft’s restricted market footprint in programmatic and CTV promoting may very well be each a blessing and a curse.
Microsoft simply doesn’t have the family scale in comparison with Google or Comcast, mentioned John Hamilton, CEO of CTV information firm TVDataNow.
Now that Microsoft has entry to premium streaming content material high manufacturers will need, it’s unclear how Microsoft will be capable of “deal with” Netflix’s large stock and the deluge of advert consumers, Hamilton mentioned.
However with Microsoft’s lack of a proprietary streaming service, the truth that it has to construct a footprint with CTV and TV advertisers may very well be a plus for Netflix, too, Hamilton mentioned. In any case, he added, constructing the tech and gross sales stack virtually from the bottom up is “virtually akin to Netflix constructing their very own answer.”
