LOS GATOS, Calif.—Faced with worries about ongoing subscriber losses that have hammered its stock price, Netflix is preparing to crack down on password sharing and to launch a new less expensive tier with ads in the last quarter of 2022, the New York Times has reported, citing anonymous Netflix employees.
The move comes as the streaming company is under increased pressure from shareholders who have seen the value of the stock plunge 70% in the last year.
That reporting indicates Netflix maybe moving much faster towards embracing advertising as part of its business model, something the company has staunchly resisted throughout its history. It was only in the most recent Q1 earnings call, when the company reported its first sub loses in years, that Reed Hastings, Netflix’s co-founder, chairman and co-CEO reversed course,
During the Q1 2022 earnings call Hastings 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.”
Those initial comments indicated the new tier or tiers with advertising could be a year or two away, reflecting the difficulty of building an advertising business from scratch.
But the rapid decline of Netflix share prices, increased competition from other streamers and the prospect that it will report up to 2 million more sub losses in the months to come, seems to have pushed the company into a much faster time-table.
