Monday AM Briefing: If You're Still Wondering Why Netflix Went With Microsoft & Xandr
Five days later, it still seems like Microsoft was a bit of “a head-scratcher” for Netflix’s advertising partner.
Xandr, the programmatic video ad platform acquired from AT&T in December 2021, is not a competitive platform in video advertising (tech-savvy WarnerMedia executives passed on it as a back-end for HBO Max with Ads).
So why was Microsoft the best available partner?
Xandr, The X-Factor
Xandr is the fascinating X-factor here (no pun intended, but let's roll with it). For instance, Bowler wrote, “Xandr’s first-party data-led approach is an ideal fit with Netflix’s privacy-focused business model.” But given Xandr was hidden from view within its previous owner AT&T that it’s not easy to back this point up.
An October 2021 press release about a partnership with data company LiveRamp announced that Xandr was expanding its portfolio of first-party data offerings. Xandr had “laid the foundation to roll out a suite of powerful tools which empower publishers to leverage their data assets to power relevant advertising, while still protecting the privacy needs of their users.”
The press release offers unusual details about one side of a business partnership - perhaps not coincidentally, two months later Xandr was acquired by Microsoft.
There is a paragraph in an article from FierceVideo’s Ben Munson with additional details on Xandr's platform I did not find in other reporting:
The company said it expects the deal to provide improved activation and advertising results through Xandr’s cross-screen, first-party data buying platform, Xandr Invest; more first-party data access and a full marketing offering through Xandr Monetize; improved ad performance access to global supply for the Microsoft Audience network; enhanced retail media solutions with PromoteIQ; and improved Microsoft Customer Experience Platform capabilities that give marketers better reach and ROI on connected experiences.
Digiday added this “more comprehensive offering” from Microsoft and Xandr would likely have proven to be an advantage over other potential suitors like Magnite and The Trade Desk.
Why Microsoft Won
Beyond Xandr, the post-mortem takes on Microsoft’s surprise victory of Netflix’s advertising business have highlighted a few solid reasons for why they won.
1. Microsoft is not a competitor
Microsoft is “the ad tech giant that doesn’t have a streaming library,” Nicole Scaglione, global VP of OTT and CTV at PubMatic, told AdExchanger.. Google, Comcast, and Roku were all considered leading contenders, but all have free and/or paid streaming services that compete directly against Netflix.
2. Netflix “needed a partner who could help it make money fast”
Insider reported that Netflix wanted revenue guarantees in the "billions”, and Google delivered a number that was “underwhelming”. Google only would “to put the effort and reconfigurations to go to market if Netflix was going to permanently outsource” advertising. That didn’t seem to be on the table.
3. Microsoft has relationships with ad buyers
“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,” Hunter Terry, vice-president of solutions consulting and CTV commercial lead at Lotame, told The Drum. But, as Megan Pagliuca, chief activation officer at ad-buying company Omnicom Media Group, told The Wall Street Journal: Microsoft doesn’t “have the muscle memory of engaging with agencies and advertisers at the level” that other tech companies have developed,
4. Microsoft has global reach
Digiday highlighted how, other than Microsoft, Google was the only potential partner with global reach in advertising. Comcast’s FreeWheel and Roku are geographically limited by distribution.
5. Microsoft’s Parakeet initiative is key
“Parakeet” is an acronym for Private Anonymized Requests for Ads that Keep Efficacy and Enhanced Transparency. Steve Sirich, general manager of the global advertising business at Microsoft, has a good interview with Digiday explaining how Parakeet works:
The browser anonymizes personally identifiable information and continues to pass it through the digital advertising ecosystem as the ecosystem functions today (Microsoft’s objective is to keep that ecosystem intact);
Consumers still have control over their data: meaning, the browser doesn’t collect and monetize PII (they collected this info before anti-tracking initiatives emerged), and consumers have the ability to opt in and out of the cohorts of information collected by browsers “based on their comfort level”.
On this point, Hannah Bowler of The Drum noted, “Among its competitors Microsoft is perceived to have a stronger dedication to privacy through its Parakeet initiative”, and “particularly in markets where government scrutiny is growing.”
Why Microsoft is the best solution for Netflix
As advertising evolves away from linear TV - an evolution being driven increasingly by the growth of the connected TV market - better contextual advertising and targeting of ads to users will require better data on those users. Netflix may have the best data on its 220MM+ subscribers, to date, and probably more, given that password sharing may extend its audience to three or four more non-paying users.
User privacy trends being driven by Microsoft and especially Apple are beginning to impede the tracking of users across the web. Google plans to drop third-party cookies next year. Moreover, regulators in the U.S. and E.U. are increasingly cracking down on data collection and sharing
So it may have been Microsoft’s leadership on privacy that won the deal: Netflix can guarantee to its valuable subscriber base the type of standard-setting privacy protections that they couldn’t guarantee with anywhere else except Apple (which is still in the early stages of building an advertising business) or Google (who is a competitor).
As for Xandr, I think the Netflix announcement downplayed its abilities because it is not ready for prime time: “Microsoft offered the flexibility to innovate over time on both the technology and sales side”, and “It’s very early days and we have much to work through”. But, Xandr offers the foundations for mapping first party data to multiple third party partners, and that will be key to Netflix's advertising success.
Must-Read Monday AM Articles
[Author's Note: I have hyperlinked certain themes to specific past mailings where I first defined and discussed them]
* Studios likely will seek a premium of 15% to 30% over existing contracts to grant Netflix the right to put their content on an ad-supported platform ($ - paywalled)
* The emerging limits of new privacy was one key rationale for last week’s major advertising deal between Disney and The Trade Desk (which I wrote about last week in How Should Comcast Value Hulu in 2024?).
* With the deal, “Microsoft just moved from supporting character in advertising to a main character” on Madison Avenue
* A Fast Company article from three years ago: How Microsoft has (so far) avoided tough scrutiny over privacy issues
* Netflix Co-CEO Ted Sarandos blames its recent slowdown on multiple factors, “including inflation’s impact on household budgets, a decline in smart TV sales due to supply chain constraints, and its departure from Russia.” ($ - paywalled)
* Offers for the US TV rights to the UEFA Champions League matches are expected to top $2 billion for a six-year deal ($ - paywalled)
The Vibe Shift
* Variety VIP’s Kaare Eriksen dives into the data on how COVID Didn’t Slow Video Game Spend. A Souring Economy Just Might
* A bad look for former Disney CEO Bob Iger on his failure to succession plan and his regrets about CEO Bob Chapek succeeding him
* “There are more movie stars on television than there are in the movies”
* User spending on non-game apps in the App Store now outpaces mobile game spending for the first time ever, according to a report from market intelligence firm Sensor Tower
* A good read on What is the Metaverse, but More Importantly, What is it NOT
* In the UK, more people are cancelling their video subscriptions to save money in the face of the cost of living squeeze, with under-24s most likely to walk away.
The 200 vs. The 10 Million
*Pay TV lost an estimated 2.1 million subscribers across cable, satellite, telco and almost all virtual MVPDs, according to a new report from MoffettNathanson.
* Cordcutting.com survey says subscribers only view 15 channels out of an average 190 channel lineup
Aggregator 2.0 & Bundles
* Disney is increasing the price of its sports streaming service ESPN+ from $6.99 monthly to $9.99 monthly, a 43% increase made most probably to drive more bundle sign-ups (NOTE: The Entertainment Strategy Guy recently estimated that as many as 15.3MM subscribers are duplicated across Disney+, Hulu and ESPN.
* Vulture’s Nick Quah published “The Mid-2022 Podcast Industry Progress Report” ($ - paywalled)
Sports & Streaming
* A New York Times piece asks, will Americans’ romance with Formula One last after Netflix’s “Drive to Survive” is gone?
* A good breakdown of the economics of new PGA Tour competitor, LIV Golf
Creator Economy, Platforms & Transparency
* Nearly 40% of Gen Z prefers searching on TikTok and Instagram over Google Search and Maps, according to Google's internal data first reported by TechCrunch.
Original Content & “Genre Wars”
* Why Netflix seems most interested in “filling the gaps left by Hollywood’s major legacy studios”, who have begun focusing on franchises with global box-office appeal. Variety VIP’s Tyler Aquilina dove into why more Netflix original content may not be enough to reduce churn.
* Why Disney’s acquisition of FX Networks was “an unexpected but smart move”
* Vulture’s Joe Adalian asked, “Do Emmys Still Matter in the Streaming Wars?” ($ - paywalled)
AVOD & Connected TV Marketplace
* Samsung gently sells Automatic Content Recognition (ACR) in a “thought leadership” piece for TVRev
* How Amazon’s acquisition of MGM “will supercharge its video ad business”, FreeVee
* eMarketer predicts connected TV devices will account for 36.4% of time spent with YouTube in 2022, and will rise to 39.2% by 2024
* Pluto TV has launched channels dedicated to syndication mainstays “Judge Judy” and “Let’s Make a Deal” and plans to debut “Wheel of Fortune” and “Jeopardy!” channels on August 1.
* YouTube TV has surpassed 5 million accounts for YouTube TV - regularly priced at $64.99/month -as of June 2022, making it the U.S.’s biggest internet-based pay TV service. nScreenMedia’s Colin Dixon broke down the secrets of YouTube TV’s success
Other
* Warner Bros. Discovery renewed contracts for two key lieutenants of CEO David Zaslav: Gunnar Wiedenfels, its chief financial officer, and Bruce Campbell, its chief revenue and strategy officer. Both got pay raises. which is a problematic (but unsurprising) signal given ongoing cost-cutting and layoffs.
* Matt Belloni of Puck News reported Zaslav also awarded HBO/HBO Max chief content officer Casey Bloys with a five-year contract.
* Dotdash tells The Wall Street Journal its e-commerce business has been a third of its total digital revenue for the past few years, and that business can position it to be “the modern Consumer Reports” ($ - paywalled)
* Research firm Consumer Intelligence Research Partners (CIRP) claims that, based on its consumer surveys, Amazon ended June 2022 with 172 million Prime members in the U.S.
* Publisher subscription platform Piano released its second annual Subscription Performance Benchmark Report