Netflix (NFLX) says it is joining forces with Microsoft (MSFT) on a new advertising supported

streaming tier.

Netflix, which has been struggling to retain and add subscribers, announced in April of this year

that it was planning on rolling out a cheaper ad-supported streaming tier after years of operating

without any advertising.

Netflix chief executive officer (CEO) Reed Hastings had long opposed adding commercials or

other promotional material to the platform but has said this year that it “makes a lot of sense” to

offer customers a cheaper streaming option.

Netflix has said that it wants to launch the new advertising tier before the end of this year.

Advertising provides a lot of profit potential for Netflix as it works to sign up more users. To

attract subscribers, Netflix has increased its content spending, particularly on original

programming.

But to pay for the new content, Netflix has raised prices of its service. Netflix said those price

hikes are helping to bolster revenue but were partially responsible for a loss of 600,000

subscribers in the U.S. and Canada during this year’s first quarter.

Netflix is scheduled to deliver second quarter earnings on July 19. The company has warned

that it could lose two million subscribers during the April through June period.

Netflix has explored several partners for its new ad-supported streaming service over the past

few months, including Google (GOOGL) and Comcast (CMCSA). However, Google already

owns YouTube, and Comcast owns NBCUniversal’s Peacock streaming service.

Microsoft doesn’t currently operate a competing streaming service to Netflix. The partnership

with Netflix could give a boost to Microsoft’s advertising unit, which contributes 6% of the

software company’s annual revenue.

Netflix stock has fallen 70% year-to-date to trade at $176.56 U.S. per share. Microsoft’s stock

has declined 25% this year to $252.72 U.S. a share.