Netflix (NFLX) is working to develop an ad-supported service to help offset its slowing subscription business.
The company made the announcement earlier this year after a big earnings disappointment hit shares hard.
But the company has to set up the technology for an ad-based service before it can begin to roll it out and that's been taking some time.
Now, Netflix has made an important choice as it tries to regain its footing.
The company said it is partnering with Microsoft (MSFT) to develop the new service.
Netflix chose Microsoft because it has the "proven ability to support all our advertising needs as we work together to build a new ad-supported offering," Netflix Chief Operating Officer Greg Peters said in a blog post on Wednesday. The companies both made announcements on their websites.
Another reason Netflix picked the internet giant is because of its technology and sales offerings while providing privacy protections.
No start date was announced for the new tier that will be cheaper than its current options. Netflix's stock rose slightly by 1.8% on the news while Microsoft's fell by 0.6%.
“It’s very early days and we have much to work through,” Peters said. “But our long-term goal is clear: More choice for consumers and a premium, better-than-linear TV brand experience for advertisers. We’re excited to work with Microsoft as we bring this new service to life.”
Ads on Streaming Services Becoming More Popular
Facing greater competition, including streaming companies that offer plans with ads, Netflix is hoping to regain some former customers and attract new ones.
Netflix reported a decline in net paid subscription additions for the first time in a decade and lost 200,000 subscribers last quarter.
The streaming giant has held out against including ads to its platform but as competition heats up, fewer consumers spend time at home and the economy slows, Netflix had to seek a new strategy.
Netflix reports second-quarter earnings on July 19 and investors will seek out more details about its partnership with Microsoft.
Streaming providers such as Discovery+, HBO Max, Hulu, Paramount+ and Peacock all have ad-supported options for viewers.
Microsoft CEO Satya Nadella said the new partnership would provide publishers “more long-term viable ad monetization platforms, so more people can access the content they love wherever they are.”
In June, Netflix’s Co-CEO Ted Sarandos said the change in Netflix's no ads policy emerged because the company was missing out on a large segment of viewers, according to an article in The Hollywood Reporter.
“We’ve left a big customer segment off the table, which is people who say: ‘Hey, Netflix is too expensive for me and I don’t mind advertising,'”
