Netflix looks set to implement some of the biggest changes to its business model in years. During the company’s first quarter 2022 earnings call, CEO Reed Hastings dropped two bombshells.
Netflix lost subscribers
First: Netflix lost subscribers for the first time in a decade – 200,000 to be precise. That’s a far cry from the 2,000,000 subscribers the company predicted. Gain just three months ago.
It’s worth noting that Netflix is in the red on its subscriber numbers in part because of Russia’s invasion of Ukraine — it lost 700,000 accounts after shutting down its services in Russia. Yet even ignoring this part of the accounts, Netflix fell far short of expectations.
To continue combating declining growth, Netflix plans to crack down on password sharing, which Hastings has previously called a “positive thing” on several occasions.
On today’s call, Hastings instead said “we just gotta get paid for them”, referring to the roughly 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 huge surprise. I imagine most Netflix users knew this was coming ultimatelybut Netflix was still growing fast enough that the company didn’t see password sharing as a major issue.
The company has actually been testing password-sharing deterrents for a few months now. That said, COO Greg Peters indicated that Netflix might not eliminate password sharing entirely, but rather charge people for it. That suggests the company might consider offering a split plan for people who might not live in the same household, though Peters didn’t specify as much.
Although the company has blamed password sharing a lot, it’s not something new and it doesn’t seem to have increased dramatically recently. The company’s growth has stalled largely because there is little screen time to go and the company continues to raise prices. Competitors – which are often cheaper – also have good shows.
Announcements are coming (probably)
More surprising was the second bombshell: it seems almost certain that Netflix will introduce an ad-supported tier down the road.
Hastings said the company is now “fairly open” to ad-supported subscriptions after years of opposing it:
“Those who have followed Netflix know that I am against the complexity of advertising and I am a big fan of the simplicity of subscriptions. But as much as I’m a fan of that, I’m a bigger fan of consumer choice, and allowing consumers who would like a lower price and tolerate advertising to get what they want makes a lot of sense.
While it’s common to offer an ad-supported tier for streaming services, this is a sea change for a company that has made its lack of advertising part and parcel of its identity. In 2019, Hastings blatantly denied any rumors that Netflix would switch to an ad-supported model.
But I’m fine with them
While some will miss the sanctity of ad-free Netflix, I think that’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 should ideally, you know, stop charging more money to folks, that’s probably not going to happen. Giving those who only want to watch Netflix occasionally a more affordable option seems like a good thing to me.
I guess the ad-supported tier will be 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 a m picky about picture quality, so I always want to watch my favorite shows in glorious 4K. If Hastings really wants to give consumers more options, I hope the ad-supported tier isn’t limited to potato-grade 480p.