Why Netflix Chose Microsoft to Power Its Advertising Ambitions

Not long after it unveiled its intent to get into the advertising business in April, Netflix executives met with, it seemed, everyone in the space.

Roku, Comcast, Google, The Trade Desk … if there was a company with a streaming video ad tech stack and sales infrastructure, Netflix wanted to hear their pitch (in recent weeks executives at Google and Comcast were under the impression that they were the finalists in the bake-off, while The Trade Desk inked a deal with Disney on July 12).

In the end however, the tech giant Microsoft — backed by its recently acquired Xandr video advertising unit — emerged as the winner.

While there were some obvious conflicts that would have made some of the potential partners an awkward pairing (Roku operates the Roku Channel, Google owns YouTube, and Comcasts NBCUniversal owns Peacock, after all), there were a pair of things Netflix was looking for that may have given Microsoft an edge in the conversation, according to someone familiar with the talks that the streaming service had held in recent months: Privacy, and a willingness to iterate quickly.

Digital advertising is invasive, with many of the ad giants like Google and Meta (formerly Facebook) leveraging their deep river of consumer data to precisely target consumers with relevant ads. Many TV companies are shifting in that direction as well, promising precisely targeted digital video ads.

But that data firehose comes at a cost, with regulators in the U.S. and E.U. cracking down on data collection and sharing.

In fact, during the same earnings call where he disclosed the ad plans, Netflix co-CEO Reed Hastings said that Netflix wanted to take a different approach.

“The online ad market has advanced, and now, you don’t have to incorporate all the information about people that you used to,” he said. “So we can be a straight publisher and have other people do all of the fancy ad-matching and integrate all the data about people.”

Indeed, the Netflix deal “endorses Microsoft’s approach to privacy, which is built on protecting customers’ information,” Microsoft president of web experiences Mikhail Parakhin wrote in a blog post July 13. Netflix COO Greg Peters added in a blog post of his own that the partnership would have “strong privacy protections for our members.”

“It makes total sense that Netflix would make that a big issue,” Kevin Krim, the CEO of the marketing data and analytics company EDO tells The Hollywood Reporter. “If you have such a valuable subscriber base, you are going to be incredibly protective of them.”

That ability to provide privacy, combined with an established tech stack through Xandr, and a strong ability to iterate quickly, helped push Microsoft over the finish line, the person familiar with the thinking said.

That flexibility could allow Netflix to scale its ad tier quickly, or pivot its strategy should the need arise.

The tech giant, meanwhile, will be able to leverage the Netflix deal to turbocharge Xandr’s growth in a way that the previous owner AT&T was never quite able to. And for marketers, a one-stop shop with inventory on Netflix, the Xbox platform, and Xandr’s existing connected TV business may be too good of an offer to pass up.

“It is incredibly rare that a super-scaled, global, highly premium video advertising set of inventory comes to the market,” Krim says. “This is a once in the blue moon type of thing.”