Why Netflix Chose Microsoft As Its Ad Tech And Sales Partner

Comic: Netflix Headquarters

Just 3 months immediately after Netflix surprised the environment with the news that it designs to launch an ad-supported tier, the streaming leader has settled on its 3rd-social gathering vendor of preference: Microsoft.

But why Microsoft?

Netflix’s preference may possibly seem peculiar because, even though Microsoft Advertising (by one particular identify or a different, previously all grouped beneath the Bing model) has been around considering that 1997, Microsoft was not thought of a significant programmatic contender until it bought the longtime programmatic tech leader Xandr (née AppNexus) from AT&T – which was declared in December of very last yr but didn’t near until eventually previous month.

Pointless to say, the advertisement tech sector was taken aback. “Xandr has hardly ever been outlined in discussions with electronic video clip leaders about what is likely to take place with Netflix,” reported Nicole Scaglione, world wide VP of OTT and CTV at PubMatic. Xandr has a deep foundation in programmatic – it is just one of the oldest and biggest SSPs – but specified the brief integration window with Microsoft and the increase of other players in CTV, particularly, it was a darkish horse contender for the Netflix account.

“The regular best-of-brain suspects ended up Google and FreeWheel,” she added.

Continue to, something made Microsoft stand out. &#13

“It’s the advert tech big that doesn’t have a streaming library,” Scaglione stated. Google’s YouTube and YouTube Tv, as well as Comcast’s Peacock streaming assistance, compete right versus Netflix. Bearing that in thoughts, she said, “this [choice] would make a ton of feeling in hindsight.”

Microsoft also has a solid place in gaming, considering that it owns Xbox and acquired Activision this calendar year. Netflix dove head-first into gaming very last year and has considering the fact that acquired 3 gaming studios. Apart from the pure video game growth and distribution angle, Xbox also is a streaming system exactly where customers can … drumroll … obtain and check out Netflix.

Microsoft’s acquisition of Xandr and its longstanding market maintain in console gaming combine to give it an “excellent position to provide brand name-secure advertising [for Netflix],” mentioned Jeff Sue, GM of Americas at Mintegral. (As well as, it checks the box for non-interruptive material.)

Eye of the storm

While the partnership makes perception (and Microsoft is very likely celebrating bottomless advertisement dollars in Aruba), stepping out into the AVOD place is no wander in the park.

Netflix has never ever experienced to facial area any of the chaos, crudeness, buyer dissatisfaction or controversy that CTV advertising is recognised for.

For 1 detail, “measurement is a mess,” Scaglione explained.

Deduplicated measurement and frequency manage across streaming channels is a single of the largest discomfort factors in the CTV ecosystem, and now it’s an challenge that need to keep Netflix on its toes (if not up at evening).

“CTV measurement is a great deal a lot more fragmented than in cell advertising,” Sue claimed, referring to all of the heated competitors amid third-occasion providers. “This [fragmentation] has currently made problems for AVOD monetization.

The most important challenge is going to be balancing successful monetization with out turning away subscribers that are accustomed to advertisement-free articles.

“The greatest way to execute this harmony is arduous focus to frequency management,” stated James Brooks, CEO of performance-dependent advertisement exchange GlassView. “Making the viewer working experience major-of-mind is the most significant precedence. [Netflix] doesn’t want to shed a entire bunch of viewers from this,” he included, portending the potential friction when tens of millions of Netflix customers, several of whom really do not track the advert marketplace intently, could be horrified to find out adverts on Netflix.

Netflix is keeping away from this by generating the advertisement-supported tier a new possibility. All latest subscribers are advert-cost-free and will have to intentionally change to the less costly tier with adverts (so they will not be amazed but not delighted by the new adverts).

Microsoft, which transitioned from just console-centered gaming to shoulder its way into digital and in-match advertising, is primed to enable Netflix supply a much less-than-messy ad working experience. But Microsoft’s restricted marketplace footprint in programmatic and CTV advertising could be both equally a blessing and a curse.

Microsoft just doesn’t have the household scale as opposed to Google or Comcast, said John Hamilton, CEO of CTV knowledge business TVDataNow.

Now that Microsoft has access to premium streaming content material prime brands will want, it’s unclear how Microsoft will be capable to “handle” Netflix’s huge stock and the deluge of advertisement purchasers, Hamilton claimed.

But with Microsoft’s deficiency of a proprietary streaming company, the fact that it has to make a footprint with CTV and Tv set advertisers could be a moreover for Netflix, as well, Hamilton mentioned. Right after all, he additional, making the tech and sales stack practically from the floor up is “almost akin to Netflix developing their possess remedy.”