Netflix And Microsoft Is A Partnership Built On Bundling

On TV & Video” is a column exploring opportunities and challenges in advanced TV and video. 

Today’s column is by Humphrey Ho, managing director, Americas, Hylink Digital

In mid-July, Netflix announced a partnership with Microsoft, selecting the tech giant for its new advertising and sales agency. Odd, right? The obvious choice was Google, especially with the push for cookieless data. But there’s more than meets the eye to this partnership.

To start, Netflix will have access to Microsoft’s entire bundle, including cloud storage, access to consoles and user data. Through this partnership, Netflix will be able to target the right audience without third-party user data when it launches ads in 2023, all while Microsoft stands to acquire Netflix and gain access to its massive library of content. 

But let’s back up and break down this trajectory.

Setting the stage for change

Starting early next year, Netflix will update its subscription options to include a cheaper, ad-based service while potentially increasing the prices of its standard subscription. The reason? Netflix is bleeding money because it lost 200 thousand users in quarter one of this year. Stocks immediately dropped by 35%. And in the past six months, they’ve plummeted even further by 42%. In short, Netflix is struggling.

Bundling for more perks

Microsoft will not only give Netflix ad servicing, but also the cloud storage it needs for its library of over 5,000 TV show and movie options.

Currently, Netflix uses Amazon’s AWS for cloud storage. With Microsoft Azure, Netflix may no longer need AWS. That’ll save the streaming service money on cloud costs.

Plus, with Microsoft, Netflix can meaningfully enter the gaming space. As of July 2022, there are only 22 games available on Netflix, mostly for mobile devices. By the end of 2022, Netflix plans to offer 50 games. But with Microsoft by its side, Netflix’s gaming potential grows massively – the company gains access to Activision Blizzard, the powerhouse behind “Call of Duty,” “World of Warcraft,” and others. And with Microsoft’s pending acquisition of Activision, there’s an even greater wealth of content that Netflix could tap into to produce shows, movies, and spin-off games.

Activision also gives Netflix the opportunity to enter the virtual reality space. Already, the US Department of Defense uses Microsoft’s Xbox software and gaming console to train soldiers with HoloLens. The opportunities for Netflix are huge. Virtual Netflix-branded movie theaters, anyone?

Microsoft and Netflix: A desperate duo?

By aligning with Microsoft, Netflix is setting itself up for an acquisition, preventing impending financial doom and giving Microsoft the reins to rebuild usership. 

As for Microsoft, the partnership will provide the missing piece of content creation that it desperately sought with the launch of Xbox Entertainment Studios. This attempt to make TV content for Xbox and Microsoft users failed, but Netflix can help Microsoft right its own ship.

This also adds 221 million users to Microsoft’s advertising network, which has traditionally struggled behind Google and Meta, and helps Microsoft create a moat in advertising, following in the footsteps of Apple with its Search Ads business.

Clearly, there’s something in it for both players. 

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