Dusseldorf Netflix’s plans for an ad-supported subscription option are becoming concrete. The streaming service has now chosen Microsoft as its technology and sales partner. The software giant has all the necessary skills for this, wrote Netflix manager Greg Peters, who is responsible for the operative business, on Wednesday night in the entertainment group’s blog.
Netflix is under pressure. The streaming pioneer is the market leader with over 221 million subscribers worldwide, but growth is increasingly slowing down. This changes the previous business model, which was based on paying customers.
But when the quarterly figures were presented at the end of April, the company had to accept a decline in the number of subscribers for the first time in more than a decade: the customer base shrank by 200,000.
For the second quarter, Netflix even expects a drop of two million customers. The US group will present the exact figures next Wednesday. The Silicon Valley company has lost two-thirds of its stock market value since the fall. Because Netflix has to contend with a constant stream of new competitors, and market penetration is so high that further growth is becoming more difficult.
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In response to the weak growth, Netflix boss Reed Hastings announced in the spring that he would introduce an advertising-financed subscription model. This is a novelty for the provider. For a long time, the manager was against an advertising-based tariff.
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For him, the advantages of a simple pricing model outweighed it, he said. But he can also change his mind. Apparently that has happened, Netflix plans to offer another, cheaper tariff for which customers have to accept advertising.
The competition from Netflix also relies on advertising
In this way, Netflix could attract new users for whom a subscription has so far been too expensive. For more than 80 percent of those surveyed, advertising would not be a reason to cancel their Netflix subscription, according to a recent study by strategy consultants Simon-Kucher & Partners.
Netflix would follow the example of the competition. Disney had already announced at the beginning of March that it would introduce a cheaper, advertising-financed subscription model internationally by 2023.
“We are still at the very beginning and still have a lot to clarify,” wrote Netflix manager Peters. CEO Hastings said in the spring that the introduction would take one to two years. Observers expect things to go faster.
For Netflix, the project is not trivial. Competitors like Disney or HBO have their own marketing opportunities, for example from linear television. Netflix lacks this know-how, hence the cooperation with Microsoft.
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Netflix was also reportedly considering YouTube parent company Google and NBC owner Comcast as technology partners for the ad version.
Microsoft generates more than ten billion US dollars in sales every year with advertising. The company is the fourth largest provider of digital advertising. Most sales are made through the Bing search engine and job postings on the LinkedIn careers network. Microsoft CEO Satya Nadella described the partnership as a first step in building an advertising network that supports a broader group of media companies.
More: Three reasons why Netflix is losing customers right now – and what the video service is planning to do about it