Your browser is out-of-date!

Update your browser to view this website correctly. Update my browser now


What Netflix and Microsoft’s ad-tech partnership means for the media industry

Eamonn Armstrong, senior director product development at MediaKind, looks at the implications of the Netflix/Microsoft deal and offers insights on the broader shift within streaming to a hybrid AVoD/SVoD model

Netflix. The world’s largest streaming service to date, with 221 million global paid subscribers. Microsoft. One of the world’s biggest tech firms, has unrefuted technology and sales expertise. This month, these technology juggernauts combined to deliver an undisputed shift in the media industry,  announcing a partnership that will power the ad-supported offering from Netflix. It brings into question the role of cloud providers within the media industry and spotlights the pivotal decisions streaming services must make as they navigate the headwinds of an ever-evolving media landscape. 

The new role of cloud providers 

The decision by Netflix to partner with Microsoft tells us that cloud service providers (CSPs) are now far more than just infrastructure; they’re a core technology element in the media value chain. Most CSPs are well-known brands, including Microsoft Azure, Amazon Web Services, Google Cloud Platform and others. However, the range of services they offer may be less well known due to the sheer breadth of their portfolios. CSPs are, in fact, in an ideal position to provide lifecycle management and coordination for cloud-based applications, supporting higher layers of operational and business support systems. 

All major CSPs now offer Kubernetes services, massively simplifying cloud-native application environments by providing a pre-made and maintained Kubernetes environment into which new applications can be deployed. Kubernetes manages (among other aspects) the lifecycle of applications, ensuring that there is always the requested number of replicas, code versions are correct, and a consistent means by which applications can be updated. 

The value of live 

Netflix and Microsoft’s partnership also calls into question the value of live content within the streaming landscape. If advertising and streaming video-on-demand (SVoD) is becoming the hot combination for our industry, then it’s only a matter of time before live content becomes a cornerstone for driving the value of a streaming service. Other streaming heavyweights are already demonstrating this. For example, Hulu’s ARPU rose considerably between Q3 2020 and Q3 2021, from $11.39 to $13.15, due to higher per-subscriber advertising revenue and a lower mix of wholesale subscribers. 

To date, Netflix is the only streaming service not to publicly invest or express a direct interest in acquiring the rights to live content. It’s also the only major streaming service that’s still purely focused on VoD content. However, recent reports have suggested Netflix is in the early stages of developing a live streaming option within its service, and there are several sports that would be a natural fit with Netflix’s existing on-demand audience. For example, with the huge success of Netflix’s Formula One documentary series Drive to Survive, live rights to Formula One could be an attractive option for bringing in new subscribers and adding tremendous value to its advertising tier. 

Netflix’s decision to launch a cheaper, advertising-driven pricing tier comes as the cost-of-living crisis forces more subscribers than ever to cancel their video streaming subscriptions; 1.66 million services were cancelled in Q2 2022, according to research from Kantar. But creating a successful advertising model could be a strong first step for Netflix to frame itself once again as an economic powerhouse that can maintain its core subscriber base. Just as importantly, it could also help make itself a more attractive proposition for rights-holders assessing its credentials as a first-time provider of live sports. 

Whether Netflix needs to focus heavily on live content – bolstered by advertising – remains to be seen. Its main challenge will be gaining credibility and securing the rights in the first instance, given its current lack of any experience or audience in that space. However, while consumers are looking to balance costs, they still want to remain up to date with the latest Stranger Things series or blockbusters like The Gray Man. If Netflix can produce a successful advertising model, it could gain more power and clout within the industry to obtain those rights. Microsoft forming the bedrock of its advertising technology platform sets an impressive impression for how the rest of the industry moves forward.