With a two-year deal needing to run its course, reports that Netflix’s fledgling ad-supported tier may already be looking to jettison its Microsoft-created baseline tech for the platform may come as a surprise. However, it looks increasingly likely that they will opt for an in-house platform once the contract expires. Brandon Blake, entertainment lawyer with Blake & Wang P.A, has the news for us.
Four Months In
Four months ago, we saw the Netflix ad-supported tier launch. Four months before that, in July 2022, they announced that the backbone of the ads on the platform would be operated in partnership with Microsoft’s tech services, with a two-year deal in the bag.
Now, it seems, they need more. Both their deals with Cadillac and Best Western need a little something extra from the technology to support their spots, and Netflix will not say no to solid ad sponsorship at this fragile stage of building support for the platform. While a potential renewal of the Microsoft deal is still (reportedly) on the cards, Netflix execs are now considering either a swap to fully in-house ad infrastructure, or a potential buy-out of the Microsoft tech that would allow them outright ownership. A name you may remember last as Comcast’s Chief Product Officer, Jon Whitticom, has been brought on board as advisor on the matter.
A Critical Tier
At this point, and after a very turbulent year on the stock front, it’s no secret that Netflix will need to make their ad-supported tier as profit-maximized as possible. To date, the plan, priced at $6.99 with some limitation on device numbers and video quality, has had a weak launch. Marred by the lack of some of their in-demand content due to licensing issues, it only managed to account for 9% of new subscriptions in its first month. To date, it accounts for 0.2% of Netflix subscribers. Reportedly signup numbers have doubled for January 2023, but let’s be honest- that wouldn’t be hard at this point. Projections were that the service would have 1.75M subscribers by the end of the first quarter post-launch, or 2.4% of Netflix’s overall subscriber base, so there’s still a lot of ground to be made up. The launch of Disney’s $7.99 monthly ad-supported tier at almost the same time has not helped.
While running its own ad infrastructure is hardly a balm to those uptake woes, it could be of use to them. Being better able to control and manage their ad deployment on the platform will, no doubt, appeal to the advertisers needed to sustain it considerably. On the other hand, one can argue that a potentially lengthy (and, no doubt, pricey) new tech infrastructure investment doesn’t seem very justified at this point in time. Especially seeing that it’s subscriber uptake numbers, not underlying technology, that must most concern potential advertisers at this point in time. With no feedback yet from Netflix themselves, speculations about their route from here must remain just that- speculation.
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