Netflix’s adtech dilemma: build, buy or partner up?

Microsoft is hardly known for its connected TV (CTV) ad sales prowess, and Xandr, a traditionally web-based platform, is barely breaking into CTV (thanks in large part to the partnership with Netflix). Where does this leave Netflix?

Now, the streaming giant‘s two-year partnership with Microsoft is set to end next July. What’s the next move?

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Across the streaming landscape, it’s a toss-up as far as whether building, buying or partnering is the predominant method. After all, building an adtech stack may be easier said than done, and there are limited publisher CTV-centric ad servers out there not owned by YouTube TV parent Google (i.e., Google Ad Manager) or Peacock parent Comcast (i.e., Freewheel).

Still, there are some smaller players that Netflix could look to license or buy outright – such as Magnite Streaming (encompassed from CTV ad server SpringServe and video SSPs Telaria and SpotX), Innovid, Publica or Smartclip. All four work with some large CTV publishers, though perhaps nothing on the magnitude that Netflix brings. They would be potential options not just to partner with, but to buy outright. SpringServe, for reference, was previously acquired by Magnite in 2021 for just $30m.

Aside from the licensable adtech out there, Netflix could also buy outright a smaller AVOD or free ad-supported streaming TV (FAST) service with in-house adtech solutions, though it might not just be a monetary exercise. Fubo TV and Tubi are good examples as potential options for Netflix, having built out their own ad-serving capabilities over the last few years.

Even Fubo TV, lauded for having built out its own ad server, has been licensing and partnering with SpringServe and SpotX separately before they both became part of Magnite. Meanwhile, Fox-owned Tubi has fielded several acquisition offers in the last few months – for as much as $2+bn. Fox turned down even the highest offers, despite the price point being some four times the $440m price it paid for Tubi in early 2020. Netflix anyone?

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At this point, there aren‘t too many buying options for Netflix when it comes to bolstering its adtech capabilities. Most of the major AVOD streaming services including Roku, Amazon, Disney, Paramount, and FAST providers like Samsung and LG, have already bought the necessary tools to be ad-supported. In this regard, Netflix is far behind.

To that end, if Netflix chooses to build something in-house, it can either build from scratch or license existing application programming interface (API) and software development kit (SDK) frameworks on the market like Kevel (previously called Adzerk) in order to build something with some preexisting structure. At $30bn yearly revenue, Netflix is one of the largest companies in media. The company can afford to build if it wanted to.

By this time next year, Netflix should have amassed enough experience and talent to help manage the direct sales and ad ops needed to enable it to go it alone without relying on Microsoft. It may be a bit further out than 2024, however, until Netflix is at a comfortable place to leverage a fully built, in-house tech stack. As far as buying, if the company can manage to find a needle in this streaming haystack to purchase outright, it will still need to integrate that with its existing architecture, which could take more than a year to set up to its standards.

The savviest strategy for Netflix in the near term is to license a best-in-breed CTV-focused ad server like SpringServe, now making up part of Magnite Streaming. Partner now, build or buy later.

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Hunter Terry is vice-president of solutions consulting and CTV commercial lead at Lotame.