Netflix can build its own internal advertising service

After the two-year Microsoft deal expires, Netflix will likely build its own ad technology.

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Netflix’s commercial subscription tier has only been up and running for about four months, but the streamer may already be making big changes to the way it feeds consumers its ads. The company is considering giving up its current partnership with Microsoft in favor of building its own technology, according to a report from Digiday.

Under the current partnership with Netflix, announced in July 2022, four months ahead of the level’s launch, Microsoft’s technology serves as the backbone behind the commercials on the streamer. The deal between the companies is reported to run for two years. When that happens, according to Digiday, Netflix will likely abandon the plan in favor of a new approach.

Potential new approaches for the streamer to support their Best Western and Cadillacs spots include building their own internal advertising infrastructure. The streamer can also purchase Microsoft’s existing technology for the ads to take full ownership of it. Top executives at Netflix are reportedly in talks about these two options, in addition to potentially extending the Microsoft deal, and have hired former Comcast chief product officer Jon Whitticom as an advisor to the deliberations.

The news comes as Netflix seeks to maximize profits from its ad tier, which was introduced as a way to bounce back from a messy 2022 that saw subscriber numbers decline and the company’s share prices plummet. Early estimates showed the tier — a $6.99-a-month subscription with limited video quality that debuted several titles on the service that were inaccessible due to licensing issues — got off to a weak start, accounting for just 9 percent of new signups in the first month and 0.2 percent of subscribers overall, easily making it the streamer’s least popular plan.

In February, Netflix reportedly informed its ad partners that signups doubled over the course of January compared to November, though it’s unclear what the actual number of subscribers is at the ad level. Netflix reportedly estimated that the service would attract 1.75 million subscribers by the end of its first quarter of availability, about 2.4% of Netflix’s total North American subscriber base.

Netflix isn’t alone in launching a tier of advertising last fall, as fears of an impending recession mounted. Disney+ launched a $7.99 monthly ad plan on Dec. 8, along with a price hike on the streamer’s standard ad-free plan.

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