Netflix offers cheaper subscriptions – but viewers have to sit through ads

Netflix has chosen Microsoft to serve ads to its viewers in a cheaper version of its video streaming service.

It is expected to launch later this year with a promise to minimize the privacy intrusions that often accompany digital ads.

This is a big step towards Netflix’s first foray into advertising, having steadfastly refused to include commercials on its video-streaming service since its inception 15 years ago.

Netflix announced three months ago that it would end its opposition to advertising after it revealed it had lost 200,000 subscribers in the first three months of the year as competition and inflation squeezed household budgets, prompting management to to realize that the time had come for a less expensive option.

Netflix has warned it’s likely to report even larger subscriber losses for the April-June period, increasing the urgency of rolling out a cheaper, ad-supported version of its service to reverse subscriber erosion. That drop has contributed to a 70 percent drop in the stock price so far this year, wiped out about $190 billion in shareholder wealth and sparked hundreds of layoffs.

The Los Gatos, Calif.-based company is scheduled to release its April-June numbers on July 19, but hasn’t indicated when its ad-supported option will be available, other than launching before 2023. Netflix’s Microsoft partnership announcement also left out one crucial piece of information: the expected price of the ad-supported option.

“It’s very early days and we still have a lot of work to do,” Netflix chief operating officer Greg Peters said in a post that also highlighted Microsoft’s “strong privacy protections.”

The advertising deal with a video-streaming service with more than 220 million subscribers is a major coup for Microsoft, which has been locked in a long-running and often bitter battle with Google, the dominant force in digital advertising, over the past 20 years.

“This deal gives Microsoft something its growing ad business has been missing — high-quality, streaming video inventory that scales,” said Ross Benes, analyst at Insider Intelligence.

Mikhail Parakhin, Microsoft’s President of Web Experiences, said the Redmond, Wash. company was “thrilled” with the choice of Netflix in a post that also underscored the company’s commitment to privacy.

While Microsoft still makes software that powers most of the world’s PCs, Google always is, through its dominant search engine, ubiquitous Android software for smartphones, and other popular digital services that generated more than $200 billion in ad revenue last year become more powerful – far more than any other marketing network.

But Google’s ad sales depend heavily on the personal information its mostly free services collect about its billions of users worldwide, a form of surveillance that Netflix’s commercial disruptions to its video service appear to want to avoid to reduce the likelihood to alienate subscribers. Google also owns the videos side of YouTube, which already competes with Netflix for people’s attention and will soon be an advertising rival as well.

Microsoft might also have had another factor working in its favor. Netflix Inc. co-founder and co-CEO Reed Hastings served on the board of directors of Microsoft Corp from 2007 to 2012. Netflix offers cheaper subscriptions – but viewers have to sit through ads

Fry Electronics Team

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