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Three months after Netflix surprised the world with news that it planned to launch an ad-supported tier, the streaming leader has settled on its third-party provider of choice, Microsoft.
But why Microsoft?
The choice of Netflix may seem strange because although Microsoft Ads (under one name or another, all are grouped under the Bing brand) has been around since 1997, it was not considered a serious programmatic competitor until Microsoft acquired long-time programmatic technology leader Xandr (née AppNexus) from AT&T. – It was announced in December last year but was not closed until last month.
Needless to say, the ad tech industry was confused. “Xandr has never been mentioned in conversations with digital video leaders about what’s going to happen with Netflix,” said Nicole Scaglione, vice president of global OTT and CTV at PubMatic. Xandr has deep roots in programming — it’s one of the oldest and largest SSPs — but the short integration window with Microsoft and the rise of other players in CTV have made it a particularly dark horse contender for Netflix’s account.
“The usual high-minded suspects were Google and Freewheel,” she added.
Still, one thing made Microsoft stand out.
“it is Of An ad tech giant without a streaming library,” Scaglione said. Google’s YouTube and YouTube TV, as well as Comcast’s Peacock streaming service, compete directly with Netflix. Thinking that, “This [choice] It makes a lot of sense in hindsight.
Microsoft has a strong presence in gaming as it owns the Xbox and acquired Activision this year. Netflix Dove got into gaming last year and has since acquired three game studios. Besides the pure game development and distribution angle, Xbox is also a streaming platform where users can … drum roll … download and watch Netflix.
Microsoft’s acquisition of Xandr and its long-standing market presence in console gaming “puts it in an excellent position to deliver brand-safe advertising.” [for Netflix]” said Jeff Sue, GM of the Americas at Mintgal. (Also, it checks the box if there is non-interruptible content.)
The eye of the storm
While the partnership makes sense (and Microsoft may be celebrating low ad dollars in Aruba), getting into the AVOD space is no walk in the park.
Netflix has never faced the violence, indolence, consumer dissatisfaction or controversy that CTV’s advertising is known for.
For one thing, “Measurement is messy,” Scaglione said.
Duplicate scaling and frequency control on streaming channels is one of the biggest pain points in the CTV ecosystem, and right now it’s the issue that should keep Netflix on its toes (if not overnight).
“CTV’s scale is more fragmented than mobile advertising,” he said, citing all the heated competition among third-party providers. “This [fragmentation] It has created problems with AVOD monetization.
The biggest challenge is balancing efficient monetization without alienating subscribers accustomed to ad-free content.
“The best way to achieve this balance is a strong focus on frequency management,” said James Brooks, CEO of performance-based ad exchange GlassView. “Putting the audience experience above the mind is the most important priority. [Netflix] “It doesn’t want to lose an entire audience,” he added, pointing to the potential misunderstanding when millions of Netflix users who don’t follow the ad industry closely may cringe when they see ads on Netflix.
Netflix is eliminating this ad-supported tier with a new option. All current subscribers are ad-free and should intentionally switch to the cheapest tier with ads (so they won’t be surprised, but not happy with the new ad).
Microsoft’s move from console-based games to digital and in-game advertising is set to help Netflix deliver a less cluttered advertising experience. But Microsoft’s limited market footprint in programmatic and CTV advertising can be both a blessing and a curse.
John Hamilton, CEO of CTV data company TVDataNow, said Microsoft doesn’t have a family plan compared to Google or Comcast.
Now that Microsoft has the rights to major brands, it’s unclear how Microsoft will “capture” Netflix’s massive inventory and flood of ad buyers, Hamilton said.
But the fact that Microsoft doesn’t have a proprietary streaming service, and has to build a footprint with CTV and TV advertisers, could also be a plus for Netflix, Hamilton said. After all, building the technology and sales stack from the ground up is “similar to Netflix building their own solution,” he said.
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