Netflix intends to constrain password sharing while also bringing ads.
Netflix is considering changes to its service that it has long resisted, such as limiting password sharing and introducing a low-cost subscription backed by advertising, as a result of an unexpectedly significant loss in members. The upcoming improvements, which were revealed late Tuesday, are intended to help Netflix regain the momentum it has lost in the last year. Pandemic-driven lockdowns that fueled binge-watching have eased, while deep-pocketed competitors like Apple and Walt Disney have begun to nibble away at Netflix’s massive viewership with its own streaming services.
During the January-March quarter, Netflix’s subscriber base shrank by 200,000, the first drop since the streaming service became available in much of the world outside of China six years ago. Netflix’s decision to pull out of Russia in protest of the war in Ukraine resulted in a 700,000-subscriber loss. In the current April-June quarter, Netflix is expected to lose another 2 million customers. Netflix’s stockholders have been concerned by the erosion, which follows a year of progressively slower growth. Netflix’s stock plummeted by more than 25% in extended trading after the company revealed its poor results.
If the stock decline continues throughout Wednesday’s regular trading day, Netflix shares would have lost more than half of their value this year, wiping out almost $150 billion in shareholder wealth in less than four months. Netflix is now facing a significant challenge, according to Aptus Capital Advisors analyst David Wagner. Wagner said in a research note on Tuesday, “They are in no-(wo) man’s land.”
According to the Los Gatos, California-based company, about 100 million homes across the world are watching its service for free by utilizing the account of a friend or family member, with 30 million in the United States and Canada. “There are already over 100 million households that choose to watch Netflix,” Hastings remarked. “We just have to get paid for them in some way.”
Netflix has announced a trial program it has been running in three Latin American countries – Chile, Costa Rica, and Peru – will be expanded to encourage more individuals to pay for their own memberships. Subscribers can extend service to another household for a subsidized rate in certain locations.
Netflix plans cost $9 to $15 per month in Costa Rica; however, members can openly share their service with another household for $3. Netflix provided no other details on how or how much a cheaper ad-supported service tier would function. Hulu, another competitor, has long had an ad-supported tier.
While Netflix plainly feels that these adjustments would help it grow its existing 221.6 million global users, they also risk alienating customers and causing them to abandon their subscriptions. Netflix faced customer anger in 2011 when it announced plans to charge for its then-nascent streaming service, which had previously been bundled free with its traditional DVD-by-mail service prior to its international growth. Netflix lost 800,000 customers in the months following the shift, prompting Hastings to apologize for the spin-botched off’s execution.
The news on Tuesday was a harsh reality check for a firm that had been riding high two years ago, when millions of people cooped up at home were yearning for distractions, which Netflix was glad to give. Netflix attracted 36 million new customers in 2020, the highest yearly growth rate since the company launched its video streaming service in 2007.
Netflix CEO Reed Hastings, on the other hand, now believes that management was dazzled by the massive profits. In a video conference Tuesday, he said, “COVID created a lot of noise about how to read the issue.” Last year, Netflix took a bold step forward by adding free video games to its service in an effort to entice more people to sign up.
Inflationary pressures have been increasing in recent months, causing more people to cut back on discretionary purchases. Despite this, Netflix recently increased its costs in the United States, where it has the most household penetration – and where it has had the most difficulty attracting new users. Netflix lost 640,000 subscribers in the United States and Canada in the most recent quarter, prompting executives to say that international markets will account for the majority of future growth. In March, Netflix had 74.6 million U.S. and Canadian members.
