For a few years, there have been rumors of Netflix exploring advertising on the platform. The details of the implementation were never detailed, but the experiment was the rumor. This year, the company confirmed that not only had they been exploring the concept, but they also planned to bring about a new subscription tier that was ad-supported. One of the big questions, however, was where would the ads be coming from? Now we have an answer: Microsoft.
Last month, reports suggested that the company had been discussing with two primary providers: Google and Comcast. Google is known for its advertising, as it's the primary business model for the company. Comcast looked surprising, though the company owns FreeWheel, an online advertising agency. Both companies seemed like solid technological choices, but the relationships would be tenuous.
Google owns YouTube, an indirect competitor to Netflix, creating a conflict of interest. Comcast owns Xfinity and Peacock, both of which are competitors of Netflix, also creating a conflict. However, the solution the company has gone with is Microsoft. Microsoft has a large advertising business, as well - as powering Bing advertising, as well as developer support for websites, Windows apps, and even mobile apps. Transferring that technology over to Netflix is a natural extension. More importantly, Microsoft does not own or operate any streaming service.
One of the other interesting rumors that have been circulating about Netflix has been that they are looking for a buyer. This seems to be founded on absolutely nothing except general corporate struggles. One of the early rumors was a merger with Roku, which was also one of the potential advertising partners early on. However, that relationship would have been a mess, as Roku can't seem to keep its own house in order these days.
Another possible choice, though, is Microsoft. The company has been on a buying spree, most recently purchasing Activision Blizzard. The announcement has spurred more rumors about a Netflix buyout by Microsoft. The current belief is that this move is the first step in a process that would lead to Microsoft owning the company.
The theory isn't a terrible one. Microsoft has dipped its toe into streaming music in Zune, Xbox Music, and then Groove Music, as well as streaming video in Mixer. Both of these services are now gone, but they also both started from the ground up. In the case of Netflix, the company would be starting on 3rd base with a pitcher who isn't paying attention. Netflix has also been expanding into gaming, which is one of Microsoft's biggest focuses. This advertising relationship gives Microsoft the ability to do some internal research before making a decision.
The timing also makes sense - there is no way Microsoft would be looking for another large acquisition right now, as they are waiting for final approval for the Activision Blizzard acquisition. Once that is completed, however, they could begin to assess whether that would be a viable purchase.
But, this might not be a great purchase for Microsoft, as it really is outside of the company's core competency. If they do decide to bring Netflix into the fold, hopefully they won't ruin it like Beam.