Streaming giant Netflix says it will work with Microsoft to offer a cheaper subscription plan that includes advertisements as it fights to attract customers.
The announcement on Wednesday came as the company posted its first subscriber loss in more than a decade, and also projected deeper losses to come.
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“Microsoft has the proven ability to support all our advertising needs,” Chief Operating Officer Greg Peters said in a blog post on Wednesday.
“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,” Peters added.
For its part, Microsoft said advertisers “will have access to the Netflix audience and premium connected TV inventory”.
“All ads served on Netflix will be exclusively available through the Microsoft platform,” it also said.
Microsoft brought in $10bn in advertisement revenue last year, selling advertisements on various services such as its Bing search engine and its business-focused social network, LinkedIn.
Last month, Microsoft completed its acquisition of AT&T Inc’s T.N online advertising platform, Xandr Inc, which allows advertisers to buy advertisement space across thousands of websites and target audiences.
Microsoft President Brad Smith has served on Netflix’s board since 2015.
Adding advertising means Netflix will expose itself to some thorny issues, including debates around consumers’ personal data being harvested on a massive scale to target them with more lucrative, personalised pitches.
Analysts were not surprised by Netflix’s choice of Microsoft because it offers fewer conflicts of interest for the service than some other companies.
“Unlike the top three ad sellers in Google, Meta, and Amazon, Microsoft hasn’t pushed competing streaming products,” wrote analyst Ross Benes.
The partnership announcement comes before Netflix’s second-quarter earnings report on Tuesday. The company cautioned investors it could lose as many as two million subscribers in the period, despite the return of such popular series as Stranger Things, which broke viewer records.
Netflix joins a number of its rivals in offering advertisement-supported services, including Walt Disney Co’s Hulu, NBCUniversal’s Peacock and Warner Brothers Discovery’s HBO Max.
Disney also plans to introduce a version of Disney+ with commercials.
Researcher Comscore Inc said such advertisement-supported services are seeing a faster rate of adoption than subscription services as inflation pinches consumers’ wallets.
“The time is ripe for traditionally subscription-based streaming services like Netflix to consider launching an ad-supported tier to enhance their growth trajectory,” Comscore’s James Muldrow said in a statement.
Netflix has also indicated it would get tougher on sharing logins and passwords, which allow many people not to pay to access the platform’s content.