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Privacy, independence and gaming – why Netflix picked Microsoft as its ad partner

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By Hannah Bowler | Journalist

July 15, 2022 | 6 min read

News that Netflix had anointed Microsoft as its partner to redefine the future of ad-funded TV rocked the many adtech companies courting the streamer this week. The Drum explores why Netflix can chill now it has a heavyweight partner to jumpstart its dramatic U-turn into a more traditional advertising model.

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Why did Netflix pick Microsoft? / Adobe

With the likes of Comcast-owned Freewheel, Roku and Google all pegged as potential partners, Microsoft may have been a bit of a dark horse. However, with its recent acquisition of Xandr, its dedication to privacy and its independence from other video steamers, Microsoft appears to have ticked numerous boxes.

Hunter Terry, vice-president of solutions consulting and CTV commercial lead at Lotame, was one of the few who wasn’t shocked Netflix picked Microsoft over Comcast or “everybody’s frenemy” Google.

“As a sales partner, Microsoft has the expertise and connections with all the buyers as it has monetized its own significant web and search properties over the past few decades,” Terry says.

Microsoft’s recent acquisition of Xandr from AT&T was integral. Jeff Sue, general manager of Americas at Mintegral, says Xandr will “uniquely help monetize CTV and console, so it is in an excellent position to deliver brand-safe advertising.”

Xandr is a modular ad stack platform that serves both the sell and buy-side. It’s thought Microsoft brought Xandr to help its ad business in the post-cookie era. AT&T previously acquired Xandr (formally AppNexus) in 2018 to support the launch of its ad-funded video-on-demand (VOD) platforms. Its eventual sale perhaps shows how much success it had – but Xandr’s getting another swing at this mission now for Netflix.

Xandr’s first-party data-led approach is an ideal fit with Netflix’s privacy-focused business model. According to Greg Kahn, chief executive officer of GK Digital Ventures: “Netflix has waited many years to launch an advertising tier, in part to maintain a premium customer viewing experience.”

Among its competitors Microsoft is perceived to have a stronger dedication to privacy through its Parakeet initiative, Kahn says. “It wants to be vigilant to protect customer data, particularly in markets where government scrutiny is growing.”

Without a tie to another major video streaming platform, Microsoft also has no direct conflict of interest – unlike Comcast, which owns Peacock, or Google, which has YouTube. “The idea of independence for a platform the scale of Netflix can’t be underscored enough as its seeks to drive bias-free innovation to support a multi-billion-dollar ad business,” says Mark Zagorski, chief executive officer at DoubleVerify.

There is also an existing relationship between the two firms, with Microsoft’s president Brad Smith serving on Netflix’s board of directors, and Netflix chief exec Reed Hastings previously serving on Microsoft’s board of directors from 2007 to 2012.

Tal Chalozin, co-founder and chief technology officer at Innovid, questioned if the tie-up might be connected to Netflix’s gaming ambitions. “Microsoft is clearly a powerhouse in gaming, and my bet is the partnership between Microsoft and Netflix is just a tiny piece of a much bigger collaboration,” he says. Could Netflix even be bundled with the Xbox Games Pass? Is such synergy too much of a stretch? The streamer has already made inroads in its gaming strategy, having acquired the likes of Boss Fight Entertainment and Night School Studio.

Chalozin’s view was backed by Ryan Cook, managing director UK for Criteo, who says: “As the CTV space continues to grow more competitive, any point of differentiation could be vital. Gaming is an example of one of the lesser tapped content opportunities. Esports and platforms such as Twitch have proved the entertainment value game streaming provides, and active gaming has already broken out on streaming platforms.”

How could the partnership work?

The details of the type of partnership with Microsoft are still under wraps. At this point, Netflix could still build its own ad stack and capabilities, or it could outsource the job to Microsoft.

“If Netflix is smart, which I believe it is, it will actually follow suit with the other CTV-first companies out there and build an actual Netflix platform and manage the sales itself with fresh talent,” concludes Hunter Terry, vice president solutions consulting and CTV commercial Lead at Lotame.

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