Netflix Lowers Ad Prices For Ad-Supported Business After Microsoft Pact Fails To Deliver

Netflix Inc NFLX restructured its advertising pact with Microsoft Corp MSFT a year into their deal and reduced ad prices to boost its ad-supported business.

The streaming company launched a $6.99-a-month ad-supported option in 2022, with Microsoft as its ad partner.

Also Read: Bearish Sentiment Surround Netflix After Earnings Report: Analyst Highlights Key Concerns on Growth

Netflix secured a "minimum guarantee" to receive significant ad revenue. However, Microsoft disappointed Netflix by failing to sell the requisite ad inventory, leading Microsoft to pay out the maximum amount required under the guarantee.

Therefore, in recent ad deals, Netflix is now offering advertisers better deals, with some agreeing to pay roughly $39 to $45 per 1,000 viewers, the Wall Street Journal reports. Netflix previously charged some brands around $45 to $55.

Despite the slow start, Netflix remains committed to its ad-supported plan and sees potential in the long term. 

The new ad tier represented 3.3% of Netflix's U.S. subscribers at the end of June, up from 1.7% at the end of March. However, some ad buyers are cautious, and one principal ad-buying agency will likely reduce its upfront ad commitment.

Netflix is exploring ways to make it easier for advertisers to purchase ad space. It is in discussions with ad-tech companies, including The Trade Desk, Inc TTD and Comcast Corp's CMCSA FreeWheel, to allow them to sell Netflix ad space alongside Microsoft's Xandr.

In the second quarter, Netflix reported revenue that fell short of projections, despite adding nearly six million subscribers. Although the company is profitable, its revenue growth has slowed in the increasingly competitive streaming market.

Economic uncertainty has taken a toll on the ad market, leading to companies reducing ad spending. Despite this, during earnings calls, Netflix remains optimistic about demand and progress on the upfronts.

Price Action: NFLX shares traded higher by 0.11% at $423.14 on the last check Thursday.

Photo by Vicky Gharat via Pixabay

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.