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Amid Sub Losses, Netflix Is Considering Lower Cost Ad-Supported Plans

Pixabay
(Image credit: Pixabay)

LOS GATOS, Calif.—After Netflix reported sub losses of around 200,000 in the first quarter of 2022 and its shares plunged to four year lows, the company’s executives told investors that they are considering introducing lower-cost ad supported plans. 

In Q1, 2022, Netflix reported a decline of 0.2 million in net paid additional subscribers, way below its guidance forecast of 2.5 million net adds. 

“The suspension of our service in Russia and winding-down of all Russian paid memberships resulted in a -0.7m impact on paid net adds; excluding this impact, paid net additions totaled +0.5m,” the company noted. 

The letter to shareholders also cited the difficulties growing the companies already very large sub base and increased competition. 

Those disappointing results pushed down share prices by 36% by 11:15 a.m. on Weds. April 20th. 

During the Q1 2022 earnings call Reed Hastings, co-founder, chairman, president and co-CEO raised the idea of ad-supported plans saying, “those who have followed Netflix know that I've been against the complexity of advertising and a big fan of the simplicity of subscription. But as much as I'm a fan of that, I'm a bigger fan of consumer choice. And allowing consumers who would like to have a lower price and are advertising-tolerant get what they want makes a lot of sense. So that's something we're looking at now. We're trying to figure [it] out over the next year or two. But think of us as quite open to offering even lower prices with advertising as a consumer choice.”

“I think it's pretty clear that it's working for Hulu,” Hastings added later in the call. “Disney is doing it. HBO did it. I don't think we have a lot of doubt that it works, that all those companies have figured it out. I'm sure we'll just get in and figure it out as opposed to test it and maybe do it or not do it. So I think we'll really get in. But again, it would be a plan layer, like it is at Hulu. So if you still want the ad-free option, you'll be able to have that as a consumer. And if you would rather pay a lower price and you're ad-tolerant, that's also -- we're going to cater to you also.”

The move would be a major shift for Netflix, which has always resisted advertising and a potential bit opportunity for advertisers who have been unable to reach a large segment of Netflix viewers. 

Citing Nielsen data for February 2022, Netflix noted that it had 6.4% share of all TV viewing. 

In Q1 2022 subscribers hit 221.64 million, down 200,000 from Q4 2021 but up 6.5% from a year earlier. 

In explaining the losses, the Netflix shareholder letter stated that “in addition to our 222m paying households, we estimate that Netflix is being shared with over 100m additional households....Account sharing as a percentage of our paying membership hasn’t changed much over the years, but…means it’s harder to grow membership in many markets.”

In addition, competition has significantly heated up “over the last three years, as traditional entertainment companies realized streaming is the future, many new streaming services have also launched. While our U.S. television viewing share, for example, has been steady…according to Nielsen, we want to grow that share faster," the shareholder letter explained. 

George Winslow is the senior content producer for TV Tech. He has written about the television, media and technology industries for nearly 30 years for such publications as Broadcasting & Cable, Multichannel News and TV Tech. Over the years, he has edited a number of magazines, including Multichannel News International and World Screen, and moderated panels at such major industry events as NAB and MIP TV. He has published two books and dozens of encyclopedia articles on such subjects as the media, New York City history and economics.