The streaming giant said the service will be an “addition” to its existing plans, which currently do not include any ads.
It comes as the company aims to counter slow growth and attract new customers after announcing in April it had lost subscribers for the first time in a decade.
What has Netflix said?
Netflix announced on Thursday (14 July) it had selected Microsoft as its global technology and sales partner to introduce a “lower priced ad-supported subscription plan”.
The new subscription with adverts will run alongside its current ads-free basic, standard and premium plans.
The company has yet to confirm how much it plans to charge subscribers for the new service.
In a statement, Netflix’s chief operating officer Greg Peters said: “Microsoft has the proven ability to support all our advertising needs as we work together to build a new advertisement-supported offering.
"More importantly, Microsoft offered the flexibility to innovate over time on both the technology and sales side, as well as strong privacy protections for our members.
“It’s very early days and we have much to work through. But our long-term goal is clear: More choice for consumers and a premium, better-than-linear TV brand experience for advertisers.”
Why is Netflix introducing adverts?
The move to introduce adverts to the streaming service comes after Netflix’s customer base fell by 200,000 subscribers during the January to March quarter, the company announced in April.
It marked the first drop in members since the streaming service became available throughout most of the world six years ago.
The fall came in part from its decision to withdraw from Russia in protest over the war against Ukraine, resulting in a loss of 700,000 subscribers, and a further two million subscribers are estimated to be lost in the current April to June quarter.
The company estimates around 100 million households worldwide are breaking its rules and watching its service for free by using the account of a friend or another family member, including 30 million in the US and Canada.
Netflix previously said it was considering a crackdown on password sharing with other households and creating a new low-cost subscription supported by advertising as it pushes to regain momentum and attract new members.
Netflix has already started a crackdown in Chile, Costa Rica and Peru on people sharing passwords and is considering expanding the scheme.
The company said in its latest financial report that it believes it is being shared with 100 million extra households alongside the 222 million paying for the service.