You may not have missed it in the tech news feed: Microsoft has just announced a strategic alliance with Netflix to develop a new type of consumer subscription, including advertising. The Redmond firm oversees the platform that will broadcast these future announcements. According to analyst Laura Martin, this agreement would rather hide a much more ambitious rapprochement.
Takeover in sight?
We’re thrilled Netflix has selected Microsoft as its advertising technology and sales partner. We want publishers to have more long-term viable ad monetization platforms, so more people can access the content they love wherever they are. https://t.co/QmPszxJTOf
— Satya Nadella (@satyanadella) July 13, 2022
It was July 13th. Satya Nadella indicated on his Twitter account that Netflix had chosen “Microsoft as a business and advertising technology partner”. The SVOD platform has made this merger with the aim of developing a brand new interface allowing advertisers to be able to interfere in the heart of the Netflix catalog.
Behind this manoeuvre, one observation: Netflix is struggling to retain its subscribers as prices increase over the years and competition, with platforms such as Disney +, Paramount + or Hulu, is eating away at market share. Exclusivity no longer being a sufficient argument, Netflix counter-attacks and wants to launch a subscription at a lower price, based on advertising.
“If you want the ad-free option, that will always be possible. If you prefer to pay less and tolerate ads, there will be an offer for you too”, these are the words of Reed Hastings, CEO of Netflix. In fact, the platform cannot manage this decisive turning point alone and has chosen the commercial merger with Microsoft to develop. According to analyst Laura Martin, this is not the primary purpose of this agreement.
A specialist in the financial movements of the platform, Ms. Martin says that in the end, “it could be that Netflix is looking for an exit”. An exit which means “repurchase” according to the Needham analyst for an interview with Yahoo Finance. According to her, the fact of choosing Microsoft, rather new to the advertising field, is a choice against the grain of reason and would aim to come under the supervision of the Redmond firm, before a possible takeover.
Netflix is trying to approach Microsoft in the hopes that after Microsoft digests its acquisition of Activision, it will turn around and buy Netflix eventually. Netflix announced three months ago on its earnings conference call that it was getting into advertising — it still hasn’t hired an advertising sales manager. The idea that there is no one in the empire who is an expert in advertising, when they have chosen an advertising partner for the technological part, is doing things backwards.
Laura Martin therefore does not seem to believe in a merger with the aim of developing Netflix, even though one of its executives declared in Microsoft’s press release that despite the agreement, “it was still early and there is still a lot to do “. Seen from this angle, this partnership does not seem viable as it stands and could indeed call for a takeover of the SVOD platform by Microsoft, the two companies having always been close.
The documentary Xbox – Power We also like to remind you that without the Xbox 360, Netflix might not have had the success it has known for several years now. In the midst of change, the movie rental company had chosen Xbox as its preferred partner, before Microsoft took inspiration from it to develop its Xbox Game Pass. A buyout of one by the other would therefore, effectively, be a coherent decision between two long-time collaborators who could have everything to gain.