Netflix may offer a cheaper ad-sponsored option after losing subscribers

Despite all its likely success with original programming and new subscribers during the pandemic, Netflix is having a rough time. There have been five price increases since 2016, with the latest in January. Those are just $1 or $2 each time, but it adds up if you’re a longtime subscriber. Then, last month it came out that Netflix is testing features to crack down on password/account sharing. But the latest headaches for the company — their share prices dropping and a substantial loss of subscribers this year — may lead it to adding a cheaper plan with ads to attract subscribers for whom the $10-$20 monthly outlay is too pricey.\

Netflix’s bad 2022 just got much worse.

After shares tanked earlier this year because of concerns over its subscriber growth, the streaming leader said that it lost subscribers when it reported first quarter earnings on Tuesday.

Netflix (NFLX) now has 221.6 million subscribers globally. It shed 200,000 subscribers in the first quarter of 2022, the company reported on Tuesday, adding that it expects to lose another two million in the second quarter. The service was expected to add 2.5 million subscribers in the first three months of the year.

Netflix’s stock dropped 35% on Wednesday, instantly wiping $50 billion off the value of the company.

Netflix’s first quarter profit was $1.6 billion, down from $1.7 billion in the year-earlier quarter. Revenue jumped nearly 10%, to $7.9 billion.

It cannot be overstated just how bad of a report this is for the king of streaming. The company’s stock has fallen more than 40% year to date, and coming into the earnings there was a lot of concern from investors regarding its growth. The company hasn’t lost subscribers in more than a decade.

What happened?
In its letter to investors, the company said that since it launched streaming in 2007, the company has “operated under the firm belief that internet-delivered, on demand entertainment will supplant linear TV,” But, it added, in the near term “we’re not growing revenue as fast as we’d like.”

Netflix said that the pandemic “clouded the picture by significantly increasing our growth in 2020, leading us to believe that most of our slowing growth in 2021 was due to the Covid pull forward.”

But there are many different factors behind its subscriber stagnation, including competition from traditional media companies that have gotten into the streaming market in recent years, as well as widespread password sharing.

“In addition to our 222 million paying households, we estimate that Netflix is being shared with over 100 million additional households, including over 30 million in the [United States/Canada] region,” the company said.

The company also blamed “macro factors” that are affecting many companies right now, such as “sluggish economic growth, increasing inflation, geopolitical events such as Russia’s invasion of Ukraine, and some continued disruption from Covid are likely having an impact as well.”

Netflix said that pulling out of Russia cost the company 700,000 subscribers.

The company’s bad report is likely to roil the streaming market given that so many other firms have changed their business strategies to compete with Netflix.

Disney (DIS), for example — one of Netflix’s biggest rivals — was down roughly 5% Tuesday evening.

What now?
Netflix told investors Tuesday that it plans to turn the tide by doing what it’s always done: Improving the service.

“Our plan is to reaccelerate our viewing and revenue growth by continuing to improve all aspects of Netflix — in particular the quality of our programming and recommendations, which is what our members value most,” the company said.

The company added that it’s “doubling down on story development and creative excellence” and that it launched the “double thumbs up” tool that will allow members to “better express what they truly love versus simply like.”

Netflix also said it will focus more on “how best to monetize sharing” in terms of passwords.

“Sharing likely helped fuel our growth by getting more people using and enjoying Netflix. And we’ve always tried to make sharing within a member’s household easy, with features like profiles and multiple streams,” the company said. “While these have been very popular, they’ve created confusion about when and how Netflix can be shared with other households.”

The company said last month that over the last year, it’s been working on ways to “enable members who share outside their household to do so easily and securely, while also paying a bit more.”

“While we won’t be able to monetize all of it right now, we believe it’s a large short- to mid-term opportunity,” it said.

Another place that could help increase revenue and attract more subscribers for the service is advertising.

Netflix CEO Reed Hastings has always been allergic to the idea of having commercials on the platform, but on Tuesday’s call with analysts he mentioned that it could be a possibility in the future.

“Those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription. But as much as I’m a fan of that, I’m a bigger fan of consumer choice,” Hastings said on the post-earnings call. “And allowing consumers who like to have a lower price, and are advertising tolerant, get what they want makes a lot of sense.”

He added that the company is looking at that now and trying to figure it out “over the next year or two.”

“Think of us quite open to offering even lower prices with advertising,” Hastings said.

Despite the dramatic growth slowdown that puts its strategy into question, Netflix remained defiant.

“This focus on continuous improvement has served us well over the past 25 years,” Netflix said. “It’s why we are now the largest subscription streaming service in the world on all key metrics: paid memberships, engagement, revenue and profit.”

[From CNN]

Apparently, this was the first year Netflix lost subscribers since 2011. The numbers are a bit shocking. In January, the company expected to add a couple million subscribers during Q1 and Q2 of this year. That was “considered bad at the time.” But losing 200,000 subscribers in Q1 and a predicted loss of another 2 million by the end of June is a dramatic difference. They’re losing nearly as many as they expected to gain, which was considered bad. As Daily Intel asked, what the hell happened? But they don’t have an answer. And pulling back from Russia doesn’t even account for 1 million subscriptions. I’m surprised by this news because Netflix shows are constantly in the “what are you watching” conversation in a way that most other streaming services shows are not. Don’t get me wrong, Apple TV and Amazon and Hulu and HBO Max have their hits, but the sheer volume of Netflix offerings has always set them apart in my mind. But apparently not if they’re losing all these subscribers.

It does seem like Netflix is slightly pointing the finger at password sharing. And it may be the case it’s affecting subscriptions and therefore their bottom line. Many people purchase 1-2 streaming services and then share passwords with friends and family to have access to others. I only know a couple of people who purchase all their own subscriptions. I think for the average person, subscribing to multiple services to the tune of ~$15/month each can get cost prohibitive. (Check your cell phone plans for what streaming services may be included and certain credit cards offer 3-6% cash back on streaming services). Netflix said in the article that there was some confusion about when/how Netflix can be shared with other households, but I didn’t even think of it as households, I thought of it as screens. For example, if the standard plan allows simultaneous viewing on two screens, what does it matter if those two screens are located in separate households? Like if two people live alone and share a streaming service, how is that different from roommates or a couple sharing a streaming service? Maybe I’m biased, but I think it’s a bit unfair if that’s not allowed.

Photo note by CB: These are pictures from Anatomy of a Scandal, the current number one show on Netflix in the US. Credit Ana Cristina Blumenkron/Netflix © 2020.

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33 Responses to “Netflix may offer a cheaper ad-sponsored option after losing subscribers”

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  1. Snuffles says:

    With inflation on everything like food and basic goods and gas prices surging, non-necessities like Netflix would be the first thing to go when people start tightening their belts.

  2. Cee says:

    There’s too much competition and some people usually cancel their suscription until something interesting pops up again. Also – bad move on password sharing. They broke something that didn’t need fixing.

  3. teehee says:

    So…. TV?


  4. Hannah says:

    Or could it be a marketing strategy? They’d get a lot more than $13 in all dose Ad dollars. This way, they capture all audiences – those who’d like to pay less and suffer through the ads and those who’ll pay extra to not have them. Isn’t it funny that we’re back to what we thought we left – traditional TV and its advertising.

    • Snuffles says:

      Not really. With streaming you can still decide when you watch something and can watch it on repeat endlessly if you want. Can’t do that with regular TV programming.

  5. Becks1 says:

    I think part of it is that people were ticked about the news of the crackdown on password sharing, and maybe lack of new content? IDK. I like Netflix and watch it a lot, but it seems so many of the shows now are those reality shows or whatever about love (I don’t watch them, I don’t know what they even are, if they’re competitions or reality or fake or what lol) or shows like “IS IT CAKE?” which was cute for the first episode and then got old.

    i think its clear when Netflix puts out quality series or movies that people watch.

    Anyway, my guess is the biggest reason is inflation and people worried about increased cost to bills, especially as more and more people head back to the office FT (I cannot do this, but I have a lot of friends who stream Netflix or whatever as they telework. If you have an hour commute each way and put in a 9 hour day at the office, maybe paying for Netflix for an hour or so a night of watching it doesn’t seem worth it.)

    Also, competition. There are so many streaming services right now.

    • L84Tea says:

      I agree with all of this. I think it’s a lot of reasons and more. People are upset about the price increases, upset about the password sharing, many are going back to the office now, and yeah, other streaming services like Disney+, Hulu, and HBO Max have really stepped up their game. I’m also a major “Office” nerd and follow Office groups on Instagram–so so many Office fans ditched Netflix when they pulled it and went to Peacock instead. I’m not sure how much that affected the bottom line, but there’s all these little micro-groups out there who will abandon ship when they lose their content. It’s so many issues.

  6. Bettyrose says:

    As a tech company Netflix has been amazing at staying ahead of the curve. As a streaming company they still have the best interface and player, the technology on which they clearly have locked down hard. But they no longer have the best original programming. And as good as their catalog is, who needs a catalog when the other services are throwing so much high quality programming at us we don’t have time explore their massive catalog? I’ve considered dropping Netflix. I probably won’t but it’s the first time I’ve had the thought since they launched streaming.

    • goofpuff says:

      My favorite thing about the Netflix catalog is how they have a huge variety of content from other countries featuring diverse actors and directors. it’s a diversity sorely lacking in other streaming services in the US.

      • Stuffing+Balls says:

        We have Netflix, Disney+, Prime and NowTV (which is the source of HBO content in England). I pretty much only watch Netflix, mostly for the global content. I got hooked on K dramas during lockdown and there is so much great stuff coming out of Spain and France right now. I love that Netflix is bankrolling content production around the world. A game I like to play is to guess which country a featured show/movie is from based on the picture or trailer. I am often surprised by the variety available.

  7. Mabs A'Mabbin says:

    I’m imagining many families are taking stock of expenditures. Ordering groceries and restaurant meals is very costly, and everything has sky-rocketed in price. My husband and I sit down every couple of months nowadays and look at what we’re paying for and make adjustments. So far Netflix, is a mainstay which we’ve had since its inception. But if we have to watch ads, who knows where loyalties may fall? 😂

  8. Lala11_7 says:

    I had to choose between Netflix & Hulu…and it came down to Hulu offering the studio movie releases & network content that Netflix can’t touch since they’ve become a direct competitor to studios/networks

  9. Case says:

    They need to be more competitive with their pricing and their content. They are not the only streaming service anymore, and they definitely don’t have the most impressive catalog (that goes to HBO Max, IMO, followed by Tubi, a free streaming service that has an incredible back catalog). Jacking their prices up to be the most expensive streaming service by several dollars was not a smart move.

    Netflix also needs to be more selective about that they green light. They produce some excellent shows and movies. But for every quality project, there are 10 that are kinda garbage. I have several streaming services I split with friends or family — HBO, Disney+, Prime, and Hulu. I go to Netflix the least, I think.

    • L84Tea says:

      Netflix used to be my lifeline, but now they are the service I watch the least. I’m trying to hang in there for Meghan and Harry’s projects and The Crown, but if I had to ax a service, they would likely be it.

      • Nicole says:

        The Crown is the only reason I’m hanging on to Netflix. I would miss Bridgerton and Derry Girls, but other streaming options have so much more interesting content.

    • Kate says:

      Agree, Netflix seems to now be quantity over quality for the most part and it has impacted my usage of them. Netflix used to be my go-to and they just are not anymore (although my overall TV watching/streaming is down as well).
      I wonder if their tendency to cancel popular/well received shows too early is starting to catch up to them too.

  10. Colby says:

    This is the downside of being a publicly traded company.

    You can’t just have an off quarter/s and regroup in a way that is good for customers. You can’t have a stumble, but still be in the black, and not make any drastic changes. You HAVE to show quarter over quarter growth every. single. quarter. And when you don’t you have to do things like this for a cash grab.

  11. Coco says:

    What did they think was going to happen when they raised their prices and then we’re going to start charging people extra for sharing their password.

  12. Gelya says:

    I guess I am one of the very few who doesn’t share passwords for my streaming services. I only sub to Netflix when they have something interesting to watch. I subbed in December to watch Witcher/Lost in Space & then unsubbed. I guess I am one of their 200,000 subscriber loss.

    It has become an expensive service. It costs the same as Amazon Prime. Amazon has other benefits.

    I have Hulu for $1 a month. I subbed to Paramount Plus because I am watching some shows on it right now. I subbed to Peacock this month for Yellowstone but went back to free after watching the latest season.

    I think also part of the problem is that there is a lot of qood quality shows & movies now for free. There is only so many hours a day to watch things.

    A lot of us also wait patiently to get our Netflix fix at the library. Netflix releases DVD’s of the hottest shows and larger library systems have those DVD’s. I know my library has a section just dedicated to Netflix shows.

  13. Minime says:

    I’m a long time subscriber and I will be cancelling it as soon as I’m finished with my current series. The several increases in price are a huge turn off and also their policy on password sharing. We only share it with my in-laws and they use it probably once every three months… Still, don’t see the necessity unless they would apply it to “excessive” behavior. The price makes no sense anymore and I find it annoying that they don’t make it in anyway more appealing for long time subscribers. So I’ll just cancel it and subscribe again if there’s anything I want to watch. There are so many cheaper subscriptions right now and no time to watch it all anyway.

  14. Léna says:

    I would tolerate having maybe 1 add for about 10 seconds at the beginning of the content like they do on Twitch. Even Youtube has become unsufferable with so many ads that are unskippable and last sometimes more than 15 seconds lol

  15. Lucy says:

    What you said about screens per household just came up with a friend, about a YouTube family plan though. He’s in the Navy and his family is on base in Japan, he’s in California doing like two months of training, and YouTube isn’t letting him access the service he’s paying for. He’s contacted customer service and they understand the issue but can’t fix it. I wonder if Netflix would be any better.

  16. Twin Falls says:

    I have Amazon Prime, HBO Max, Apple +, Disney+ and Netflix. I personally use Netflix the least but my youngest watches cartoons, those annoying pre-teen sitcoms and baking shows. Not exactly a ringing endorsement for its content.

    All of my accounts are used by another household except Apple +.

  17. Andrea says:

    I only have Netflix and share my best friend’s Amazon Prime. I don’t have cable and can’t get Hulu because I am in Canada. I watch Netflix a few times per week so i am unsure on why people are dumping it.

  18. Christine says:

    Netflix has lot a lot of its core TV series to other streaming services. It’s difficult to get interested in original series because a lot of the ones I’ve enjoyed are cancelled. Makes me not want to watch any new ones. I have ZERO interest in reality TV and half of their new shows are that.

    They’ve had a few original movie hits, but a lot of them are straight to DVD quality. I’d rather have comfort/catalogue movies than mediocre new ones if it means a $2 price hike every year.

    I share my Netflix account with my sister-in-law, who is single. For her, $15 is too much money to spend on a streaming service when there are other options out there. With other services I subscribe to, I’ll watch what I want and then pause the subscription until something comes out I want to watch. Netflix is the only service I consistently subscribe to because of the shared account. If they cracked down on that, I will cancel in a heartbeat. It’s not worth the money. Hulu is bad enough with their ads but at least they actually have quality TV and movies. I refuse to pay for another service with ads.

  19. Veronica S. says:

    Their executive board has so clearly lost the plot. Why would I pay money to watch ads? Why would I pay money to watch shows get canceled after two seasons? Why would I pay to watch the series that start good but get increasingly worse over their run because Netflix is so hands off? Why would I risk getting punished for “password sharing” when I travel routinely for my job? No thanks. I foresee a return to the popularity of pirating, that’s for sure.

  20. Little Red says:

    The idea to show commercials is stupid. That was the reason I didn’t subscribe to cable. The idea of paying all that money every month and then having to watch commercials is ridiculous.

  21. Deering24 says:

    “ I think for the average person, subscribing to multiple services to the tune of ~$15/month each can get cost prohibitive.”

    It was only a matter of time before this became a problem, even before the pandemic/people tightening their belts. As well, Netflix alone is a lot of TV. Who has time to watch as much needed to justify rising costs?

  22. VIV says:

    Hulu was my go-to streaming service until I went the cheap route by using the version with ads available through Verizon. I hate the ads so much that I barely use it now. The Prime ads are starting to creep up more often too. I can only hope Netflix doesn’t decide my plan level needs ads because I’m not paying another price increase… Maybe it will be a positive and I’ll finally start reading more!

  23. WhereamI says:

    Not surprised. Just like Disney..Go Woke, Go Broke.