Netflix looks set to implement some of the biggest changes to its business model in years. In the company’s Q1 2022 earnings call, CEO Reed Hastings dropped two bombs.
Netflix lost subscribers
First: Netflix lost subscribers for the first time in a decade – 200,000 to be specific. That’s a far cry from the 2,000,000 subscribers the company predicted would gain just three months ago.
It’s worth noting that Netflix is in the red in its subscriber count in part because of Russia’s invasion of Ukraine – it lost 700,000 accounts after terminating its services in Russia. Still, even ignoring that chunk of bills, Netflix fell well short of expectations.
To continue to fight the dwindling growth, Netflix plans to crack down on password sharing, something Hastings has called a “positive thing” on multiple occasions.
On today’s conference call, Hastings said “we just have to get paid for them,” referring to the estimated 100 million viewers who use the service for free. Netflix says its anti-password sharing system will take about a year to roll out globally.
The crackdown on password sharing is not a big surprise. I imagine most Netflix users knew this was coming eventuallybut Netflix was still growing fast enough that the company didn’t consider password sharing a major issue.
The company has been testing password-sharing bans for a few months now. That said, COO Greg Peters indicated that Netflix might not completely eliminate password sharing, but rather charge people for it. That suggests the company might consider offering a shared plan to people who don’t live in the same house, though Peters didn’t specify as much.
While the company has placed a lot of blame on password sharing, this is not something new nor does it appear to have increased dramatically recently. The company’s growth has largely stalled because there is too much screen time and the company keeps raising prices. Competitors – who are usually cheaper – also have good shows.
Announcements are (probably) coming
More surprising was the second bombshell: it seems almost certain that Netflix will introduce an ad-supported tier in the future.
Hastings said the company is now “quite open” to ad-supported subscriptions after years of being against them:
“Anyone who follows Netflix knows that I’m against the complexity of advertising and I’m a big fan of the simplicity of subscriptions. But as much as I’m a fan of it, I’m a big fan of consumer choice, and allowing consumers who would like to have a lower price and are tolerant of advertising to get what they want makes a lot of sense.”
While offering an ad-supported tier is common for streaming services, it’s a dramatic change for a company that has made the lack of ads part of its identity. In 2019, Hastings blatantly denied any rumors that Netflix was switching to an ad-supported model.
But I’m fine with them
While some will miss the sanctity of ad-free Netflix, I think it’s ultimately a good thing. Netflix has raised prices six times in the last eight years, making subscriptions twice as expensive as they were in 2014. While the company would ideally, you know, stop charging people more money, that’s probably not going to happen. Offering those who only want to occasionally watch Netflix a more affordable option strikes me as a good thing.
I assume the ad-supported tier is Netflix’s cheapest plan, but frankly, I wouldn’t mind if the company offered an ad-supported option at higher resolutions as well. I’m not a big binge watcher, so I don’t mind an ad here and there if it means I can save a few bucks. But I am picky about picture quality, so I still want to watch my favorite shows in glorious 4K. If Hastings really wants to give consumers more choice, I hope the ad-supported level isn’t limited to potato-quality 480p.