As part of its plan to stop people from giving each other their Netflix passwords, Netflix is going to put ads in.
Netflix is considering making changes to its service that it has long resisted, like limiting password sharing and adding a low-cost subscription that is paid for by advertising.
The changes Netflix announced late Tuesday are meant to help the company get back on track after losing a lot of steam over the last year. Gates that led to people binge-watching because of a virus have been lifted. Apple and Walt Disney have started to compete against Netflix by offering their own streaming services.
The number of people who use Netflix dropped by 200,000 in the first three months of the year. This was the first time Netflix’s customer base had shrunk since the streaming service was available in most of the world outside of China six years ago when it was first available. People who used Netflix less, in part, because they didn’t want Netflix to leave Russia because of the war in Ukraine. There will be another 2 million people who don’t sign up for Netflix in the April-June quarter.
This comes after a year when Netflix’s growth slowed a lot. This has worried Netflix’s shareholders. Netflix shares fell more than 25% in late trading after the company said its results were bad. If the stock drops even more on Wednesday, Netflix shares will have lost more than half of their value this year, wiping out about $150 billion in shareholder wealth in less than four months.
It’s now clear that Netflix is facing a big problem, says an analyst at Aptus Capital Advisors. A research note from Wagner says that “They are in no-land,” man’s which is what he meant.
The company in Los Gatos, California, said that about 100 million households around the world are watching its service for free by using the account of a friend or family member, including 30 million in the US and Canada. Hastings said that more than 100 million households have already chosen to watch Netflix, which is why he said that. “We have to get paid at some point for them.”
Netflix said it will expand a trial program it has been running in three Latin American countries, Chile, Costa Rica, and Peru. This is to get more people to pay for their own Netflix accounts. Subscribers in these places can extend service to another home for a lower price. People in Costa Rica can get Netflix for $9 to $15 a month, but they can share their service with another household for $3.
Netflix didn’t say how a cheaper ad-supported service tier would work or how much it would cost. Another company, Hulu, has long had an ad-supported plan.
In spite of Netflix’s claims that these changes will help it grow its 221.6 million worldwide subscribers, customers may not like the changes enough to keep using the service.
A customer backlash happened in 2011 when Netflix said it was going to start charging for its then-nascent streaming service, which had been free with its DVD-by-mail service before its international expansion. Hastings said he was sorry for the way the spin-off was done, and Netflix lost 800,000 subscribers in the months after that change.
Netflix’s announcement on Tuesday was a hard pill to swallow for a company that was booming two years ago when millions of people were stuck at home and needed something to do. Netflix was happy to fill that void. For the first time since Netflix’s video streaming service started in 2007, the number of people who signed up for the service each year rose by 36 million in 2020.
But Netflix CEO Reed Hastings now thinks that the company’s big gains may have blinded them. On Tuesday, he said that COVID made a lot of noise about how to look at the situation.
At no extra charge last year, Netflix added video games to its service to try to make people more likely to sign up for it.
Inflation has risen a lot in the last year, which has put a lot of pressure on household budgets. This has led more people to cut back on spending on things like clothes and shoes. Despite that, Netflix recently raised its prices in the US, where it has the most customers and has had the most trouble getting new ones.
This past quarter, Netflix lost 640,000 subscribers in the United States and Canada. Management said that most of Netflix’s new customers will come from outside the United States and Canada. At the end of March, Netflix had 74.6 million subscribers in the United States and Canada.
