Netflix Confirms Partnership Talks for Ad-Supported Service

CANNES, France—

Netflix Inc.

NFLX 0.25%

Co-Chief Executive

Ted Sarandos

confirmed that the streaming company is speaking to multiple potential partners to help it enter the advertising business, telling an industry conference that it may build its own ad business in the future.

Netflix said in April that it is exploring an ad-supported version of its platform and in recent weeks has explored a range of partnerships that could help it bring those plans to fruition.

Comcast Corp.’s

CMCSA -0.48%

NBCUniversal and

Alphabet Inc.’s

GOOG 0.43%

Google have emerged as top contenders to work with Netflix, The Wall Street Journal reported Wednesday.

When asked about partnership talks with ad companies on Thursday, Mr. Sarandos replied, “We’re talking to all of them right now.”

“We want a pretty easy entry to the market—which, again, we will build on and iterate in,” he added. “What we do at first will not be representative of what the product will be ultimately. I want our product to be better than TV.”

Netflix may join with an established player in the advertising industry to launch its ad offering, then build up its own ad business internally, Mr. Sarandos said. “If it becomes so important that we want to have control over it, then we might [build our own ad business].”

Mr. Sarandos said the company wanted to design an ad experience that would be “more integrated and less interruptive” than traditional TV advertising.

Netflix’s subscriber count fell for the first time in nearly a decade, causing its stock to post its worst one-day percentage decline since 2004. WSJ’s Joe Flint walks us through three strategies the company might try to continue growing, and what the changes could mean for other streamers. CORRECTION: An earlier version of this caption said Netflix’s stock plummeted to its lowest point since 2004.

The advertising industry has been buzzing in recent months about the prospect of a potential ad-supported version of Netflix. The company said it was exploring such an offering in April after reporting its first quarterly subscriber loss in more than a decade.

The move would be a significant change for a company that has sold itself since its inception as a commercial-free haven for its subscribers.

Netflix’s strategy shift on advertising came as a sign that the end of a pandemic-fueled growth spurt and competitive streaming market was weighing on the company. A lower-priced ad-supported tier would help Netflix boost revenue and subscriptions.

Speaking at the Cannes Lions conference, Mr. Sarandos was also asked about the company’s handling of a controversy in response to a 2021 comedy special on its service.

Mr. Sarandos expressed regret for the way that he and the company responded to anger over the comedy special, in which comedian Dave Chappelle made jokes and remarks regarding gender that many in the transgender community, including some Netflix staffers, found offensive.

“We had some folks inside Netflix who were very upset. They were hurting,” Mr. Sarandos said. “I think I should have been empathetic with them directly. That’s one of the things I regret.”

Mr. Chappelle has said he stands by his comments and said he would be willing to meet with transgender Netflix employees to hear their concerns.

Mr. Sarandos said Netflix would continue to produce content from a broad variety of viewpoints, even if the content offended some individuals. He said the same philosophy motivated the company’s defense of its LGBTQ+ content, despite calls from around the world to remove it.

Mr. Sarandos also addressed reports that Netflix could consider buying a company that makes hardware used to access the company’s service, given the large number of consumers who use internet-enabled TVs or streaming sticks to watch Netflix’s content.

“We don’t need it,” Mr. Sarandos said, declining to comment on reports that Netflix could be interested in buying streaming hub

Roku Inc.

Write to Patience Haggin at [email protected]

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