TL;DR
Netflix is trying to set themselves up to make inroads into creating digital experiences out of their existing IP (Basically following in the tracks of Disney). Microsoft is trying to make more headway into integrating an ad based revenue model for Xbox gaming (currently for free-to-play gaming, but I’m sure this will expand into more dynamic ad placements across all titles).
Jump to “The Metaverse Play” if you want to skip the background and get straight to the good stuff.
Netflix is having Microsoft do what?
So Netflix is preparing to reveal their new tier based subscription plans. They’re planning to introduce a more affordable subscription that’ll bring ads to the platform, and they want Microsoft to “serve them” (whatever that means).
Now this news by itself is not enough for the greatest metaverse medium mogul(that’s right, I am Mathew Ball) to write about this, but what made this topic extra spicy was the fact that good ol Billy Gates got himself involved in this (Bill will never not be CEO to me).
Microsoft ended up beating out the likes of Google and Comcast to service ads for Netflix. Now to be honest, I really had no clue what it meant to “serve ads” for a platform, but that’s what Wikipedia is for. So after blindly trusting some open source knowledge, I think I have a good idea of how this works now.
Ad Serving for Dummies
So when a company wants to put ads on their platform, they usually don’t take on the entire burden by themselves. Typically, companies utilize a separate 3rd party that mediates the whole process. So in this case, Netflix is the hosting platform, while Microsoft is the 3rd party.
As the host, Netflix is the website/app/platform where the ads are going to be consumed (by us, the people). How Netflix presents the ads is still up in the air, but I wouldn’t be surprised if they just stick to the generic pre-roll/mid-roll model that Hulu and YouTube make use of. Seeing how the Netflix Home page UI is already packed with a ton of content, I’d be surprised if they employ banner/billboard ads on the page. The type of ads will also probably compare more to a Hulu or HBO than they would other streaming sites like YouTube (sorry kings, no Manscape ads before you binge New Girl).
Microsoft being the 3rd party servicer took everyone by surprise, but once I actually read up on what the ad servicer does, it makes complete sense. They serve two major functions: the first is acting as a massive data storage facility, and the second is being a decision engine.
Data Storage
As a data facility, Microsoft acts as the warehouse for all the ads shown on Netflix (and all the additional websites/apps they serve ads to). So if there are 5,000 different ads that are going to be shown on Netflix that month, those 5,000 ads are going to live on some server in Billy Gates’ basement. Beyond just housing the ads themselves, Microsoft will also be the one tracking/storing all the key metrics surrounding the ad campaign (clicks, impressions, etc.).
Decision Engine
For Netflix to make money on ads, they need to prove to companies that they have a large audience that’s profitable to market to. They need to understand the type of people that make up their population and categorize them to show their potential value to ad companies. So Netflix will throw some analysts at the data and come up with a bunch of enticing views to get brands interested in placing ads, and once they have all of this data summarized, they can say “Hey random video game company, we did some analysis and found that we’ve got 10MM guys between the ages of 16–28 that watch X,Y, and Z shows. You could really benefit from throwing ads on there!” Then the ad company would respond saying “Wow Netflix, I can’t believe your analysts put together a thousand charts showing all the different ways you could segment your population. These look great, but we’re not gonna look at a single one cause we have $20MM to blow on ads this year. Let’s do this!” <RIP to all my DA’s and BA’s out there>. But once the two businesses have come to an agreement on the types of ads that should be shown to certain customers/shows, they’ll then send all these specifications over to Microsoft to actually implement them on the backend, creating the decision engine.
The CEO of Netflix said that Microsoft edged out the competition for this bid because they are much more committed to ensuring “data privacy”. I don’t really know enough about the space to make any comments on this, but it’s interesting nonetheless.
The Metaverse Play
Once I understood the role that Microsoft would be playing here, it started to become a little bit more clear on how this could be a long play towards the metaverse.
Now bear with me a little here. It’s not completely obvious, but I think Netflix is preparing to take on Disney. Disney, as a metaverse company, has so many great things going for it, but I think the most important aspect, that they’ll hopefully capitalize on, is their ability to turn intellectual property into digital experiences. Disney has already shown the capability of doing this in the real world with merchandising and amusement parks, but as we speak, they’re trying to build out even larger experiences in a new digital landscape. Whether it’s an XR experience at a Disney park, or a completely virtual Star Wars hotel, Disney is making big plays to leverage the content they’ve spent almost a century crafting.
Netflix is a few steps behind, but I think they understand that the metaverse is the next channel for monetizing content. Now I’m not trying to say Netflix is gonna come out with their own amusement park, but I do think they’ll at least test the waters with digital experiences, especially gaming. There have been rumors about Netflix streaming games, and I think Microsoft could have a huge part to play in this. Could this be a solo venture, sure, but why not partner with one of the largest gaming platforms in the world — Xbox.
“Netflix is a few steps behind, but they understand that the metaverse is the new era for monetizing content” — Gandhi
Now I know my Netflix theory is a bit of a reach (I just wanna see Fall Guys’ — Squid Games edition), but I think for Microsoft, it’s a pretty obvious move to expand their ad business. Specifically, for free-to-play gaming on Xbox. If they can continue to make headway into an ad-based revenue model for the free-to-play games (and even Xbox game pass), this could be a massive driver that supplements the current subscription/product model that game platforms rely on today. When you mix in the fact that tech companies are starting to research AI-driven dynamic ad-placements (imagine your gear is “sponsored” by a different company every multiplayer match in COD), the future of ads within gaming really starts to get interesting.
Geez this wasn’t supposed to be a very long read, but as I was writing this, I just kept thinking of cool ways Netflix and Microsoft could make moves into the metaverse. Sounds like I gotta cook up another article…
I might be legally obligated to state that I am in fact NOT Mathew Ball, but his book on the Metaverse does come out tomorrow and if CEO’s on LinkedIn are a trustworthy source, its supposed to be really good. Use the promo code “TOSANE” to get absolutely nothing off.
Thanks for reading
