Netflix eying ad-supported tier, password sharing paywall expansion

The company just lost subscribers for the first time in over 10 years, so it's looking into ways to improve business

Netflix's Reed Hastings

Netflix says it’s looking into adding a lower cost, ad-supported subscription tier.

Previously, Netflix has been non-committal about such an offering, despite some analysts suggesting that the company do so. In a recent earnings call, Netflix CEO Reed Hastings admitted that going the ad route would give consumers more options.

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

Other major streamers have already done this. In the U.S., both HBO Max and Hulu offer lower-cost, ad-supported tiers, while Disney+ will do the same in the U.S. later this year and internationally in 2023. For Netflix, a cheaper alternative could help growth, following the company’s recent news that it lost 200,000 subscribers — its first quarterly decrease in more than 10 years — in Q1 2022. The company is projecting a further loss of two million subscribers in the second quarter.

“Our revenue growth has slowed considerably,” wrote Netflix in an April 19th letter to shareholders. “Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally. However, our relatively high household penetration — when including the large number of households sharing accounts — combined with competition, is creating revenue growth headwinds.”

Netflix attributed the subscriber drop to the suspension of its business in Russia amid global sanctions against the country over its invasion of Ukraine. A cheaper Netflix tier would balance out its recently enacted price increase — the second in under two years.

However, don’t expect an ad-enabled option from Netflix anytime soon. According to Hastings, specific details on how this will work, including pricing, will be hashed out “over the next year or two.” He did note, though, that the company isn’t viewing ads as a “short-term fix” to subscriber growth.

Another strategy the company is publicly eyeing is cracking down on password sharing. While this practice has actually been against Netflix’s terms of service, the company nonetheless hasn’t prevented anyone from doing so. However, the company recently unveiled the testing of a (roughly $3 to 4 CAD) paywall on password sharing in Chile, Costa Rica and Peru.

While the streamer originally said it’s waiting to gather data from these initial tests before making any decisions on expanding them globally, Hastings has now suggested this will likely happen. In its Q1 2022 earnings release, Netflix estimated that in addition to its 222 million paying subscribers, more than 100 million additional households are sharing passwords, including 30 million in the U.S. and Canada.

“Those are over 100 million households already are choosing to view Netflix,” said Hastings. “We’ve just got to get paid at some degree for them.”

It’s unclear when Netflix may potentially introduce the password-sharing paywall in other countries.

Via: Business Insider