If you watch TV, every half hour show was designed to for 24 minutes of content and 6 minutes of advertising in between the show. Companies paid advertising companies to place their ads when the most viewers would see them and hopefully some would be buyers of the product. If you did not like the commercials, the movies seeing another revenue source embedded the products in the movie. What drink does the main character drink? did the company pay to have them drink that product? and the list can and does go on and on. Hopefully, the character and the product placements made sense and you did not really pay attention to it.
As technology evolves people want choice and along came streaming sources which allows the consumer to watch whatever programs they want to, when they want to. The idea of binge watching an entire season of shows is available. People loved streaming companies until the growth of new subscribers slowed and the companies wanted more growth, what to do? The solution offer streaming subscriptions at a lower price, but with advertisements within the shows.
In an article from Reuters, Netflix has picked Microsoft as a partner to run its placement of ads. Why Microsoft, Chief Operating Officer Greg Peters of Netflix said Microsoft has good privacy protection as well as Microsoft has the ability to be innovative.
Recently Microsoft completed acquisition of Xandr Inc which is an online advertising platform formerly owned by AT&T. Xandr allows advertisers to buy ad space across thousands of websites and target audiences. Microsoft sold $10 billion in ads last year across its Bing search engine and LinkedIn social network.
Netflix joins other companies offering ads and no ads streaming services including Hulu, Peacock, HBO Max and Disney+.
In related Netflix news, the company reported it lost 1 million subscribers, the stock went up because the expectations were the company was going to lose 2 million subscribers. Netflix beat expectations.
Linking to dividend paying stocks, when you examine the underlying abilities of the company to make money, in this case you see entertainment driving advertising revenues. You may love the entertainment which is great, but in reality it is an advertising vehicle. Understanding the premise allows to understand how and if the company is making profits. How is the company doing in bringing advertising? do advertisers pay premium prices? and the list of questions can go on. The answers allows you as an investor to decide to hold or seek alternatives.
There are more questions than answers, till the next time – to raising questions.