Netflix is ​​reviewing its advertising strategy and considering “build or buy” away from Microsoft

Netflix announced its Microsoft partnership in July as part of a pact expected to generate billions in ad revenue for the online streaming service.

Although, after a rocky start on Madison Avenue, it seems like Netflix is ​​now considering alternative options to run its business with possible outcomes, including the streaming giant bringing its ad technology in house.

Digiday has learned that Netflix has begun exploring possible options for its suite of advertising technologies in a recent series of moves, including retaining the services of high-profile expert advisors.

The ultimate outcome of such measures is still undetermined. According to separate sources, the current advertising pact between Netflix and Microsoft runs for two years with the possible outcomes of the current course of action, which may include Netflix building or buying its own technology.

Spokespersons for both Microsoft and Netflix declined to comment when asked directly about the length of the pair’s ad-tech partnership. However, it is clear that the current arrangements mean that both parties have the option to extend the partnership into 2024.

In the meantime, Digiday has learned that Netflix has hired the services of Jon Whitticom, formerly chief product officer at Comcast’s ad technology unit FreeWheel, as its advertising platform advisor. considerations.

Ad Technology Discussions

During the early weeks of 2023, Netflix representatives began seeking advice on how to make the decision to provide subscribers with the most appropriate ad placement – technology that Microsoft can provide through its Xandr assets.

Sources familiar with the conversations, who declined to be named given the ongoing nature of the discussions, are interpreting such questions as indicating that Netflix is ​​exploring the possibility of building its own ad server, reducing its reliance on Microsoft’s ad products.

Another possible option is for Netflix to buy ad technology assets, although no sources consulted by Digiday so far report direct knowledge of such active conversations. While most believed that early-stage explorations of potential acquisition targets were a likely outcome — “very logical” according to a business development source — even if nothing came of it.

“Any kind of build they want to go for would involve a lot of customization. I think it shows they are serious about the advertising business,” added a source familiar with the technical nature of the discussions. “If you’re serious about it, you want in-house, especially when you’re this big.”

A Netflix spokesperson declined to comment on the record when Digiday approached him for comment on the nature of such discussions.

Surprise candidate

When Microsoft was named Netflix’s “global ad technology and sales partner,” it came as a surprise that media reports tipped both. Comcast and Google’s respective ad technology suites as front-runners ahead of the final announcement in July.

In addition, the fact that ratings fell short of initial guarantees may mean that Netflix had to issue refunds to advertisers early on, which could be interpreted as a tacit admission that future improvements are needed.

According to separate sources, the video ad technology products in Xandr, Microsoft’s ad technology unit, fell short of initial expectations with separate public comments from Netflix execs indicating some of the areas it wants to focus on.

After announcing its pact with Microsoft to make headlines, Netflix followed suit with the appointment of Jeremi Gorman and Peter Naylor (both from Snap) to lead the ad division with Insider Intelligence estimating that ad revenue will exceed $2024 by 2024. could exceed 1 billion.

Slow start

However, in the first few days after the announcement, media buyers were surprised by the $65 CPM prices they had been getting leading up to the commercially supported service’s November debut.

Sources have since told Digiday that Microsoft’s alleged lack of channel conflict — NBCU’s Peacock, Comcast-owned, and Google’s YouTube are direct competitors to Netflix — was the critical aspect of the pitch.

If you buy another entity, you must specify other revenue streams

Brian Wieser, Madison & Wall

During Netflix’s earnings call in January, chief operating and product officer Greg Peters praised his company’s efforts and Microsoft’s initial efforts, but added that there is still some way to go.

“There are a ton of technical improvements in ad serving validation, measurement,” he added, according to a SeekingAlpha transcript of his Jan. 19 earnings call.

Speaking separately, Madison & Wall’s Brian Wieser told Digiday that most of the players of Netflix’s profile consider the “build or buy?” will have to consider. conundrum in choosing an ad-supported offer and that both options have drawbacks.

“Building takes a while, but then again… if you buy another entity [with a full ad tech suite]then you would have to give up other streams of income, which means you are paying for something you are not getting,” he added.

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