Netflix Teaming Up With Microsoft To Introduce A Cheaper Subscription Plan — But With Advertising

In April, Netflix Inc. NFLX announced it will roll out an affordable subscription plan for its customers. Three months later, the company named Microsoft Corp. MSFT as its global advertising technology and sales partner.

What happened: The streaming giant, which has long opposed adding commercials or other promotions to its platform, switched gears in April when it posted that it is working on introducing a lower-priced plan — in addition to the ads-free, premium services the company offers.

After interviewing several potential partners, including Alphabet Inc.’s GOOGL Google and Comcast Corp. CMCSA, Netflix selected Microsoft as its partner, as it prepares to launch the new plan by the end of the year.

“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 Chief Operating Officer Greg Peters said in a statement on the company’s website.

Microsoft Web Experiences President Mikhail Parakhin said the tech giant is thrilled to be Netflix’s first partner to help power the new subscription offering. Parakhin says all the advertisements on Netflix will be exclusively available through Microsoft’s platform.

Unlike Alphabet, which owns YouTube, and Comcast, owner of NBC Universal’s Peacock, Microsoft doesn’t own a streaming platform that competes with Netflix. This likely gave it an edge over its competitors.

Netflix hasn’t disclosed how much it will charge customers for the new service, which has not yet launched.

Why it matters:  The announcement comes at a time when Netflix is going through some financial troubles. The company lost 200,000 subscribers between January and March and is forecasting the number will reach 2 million in the second quarter.

“Our revenue growth has slowed considerably,” the company said in an April 19 letter to shareholders.

Netflix’s business strategy was built on subscriptions. Now the company has flipped its own rules to adapt and find a way to offset subscription losses. Netflix hopes the ad-supported plan will attract new audiences.

For Microsoft, the new deal is ​​a major breakthrough for its advertising department, which accounts for 6% of its annual revenue, according to CNBC.

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