Some of the biggest changes to its business model in years are on the way. Reed Hastings dropped two bombshells on the company's Q1 earnings call.
It was the first time in a decade that the company lost subscribers. Three months ago, the company predicted it would gain 2,000,000 subscribers.
Russia's invasion of Ukraine has led to the loss of hundreds of thousands of accounts at the streaming service. Even ignoring that portion of accounts, the company fell behind expectations.
Password sharing is something which Hastings has previously called a positive thing and which will be cracking down on in order to combat dwindling growth.
Hastings said that they had to get paid for the 100 million viewers who use the service for free. It will take a year or so for the anti-password sharing system to be deployed globally.
It doesn't come as a huge surprise that password sharing is being cracked down. I think most of the users of the service knew this was coming eventually, but the company didn't consider password sharing to be a major issue.
The company is testing deterrents to password sharing. Greg Peters said that the company may charge people for password sharing. Peters didn't specify how much the company might offer a shared plan for people who don't live in the same household.
Password sharing isn't new or has increased recently, but the company placed a lot of the blame on it. The company's growth has stopped because it keeps raising prices and there isn't enough screentime to go around. Competitors have good shows too.
The second bombshell was that it seems all but certain that an ad-supported tier will be introduced in the future.
After years of being against them, Hastings said the company is now open to ad-supported subscriptions.
“Those who have followed Netflix have known that I’m against the complexity of advertising and I’m 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 to have a lower price and are advertising tolerant get what they want makes a lot of sense.”
It's a dramatic shift for a company that has made its lack of ads part of its identity. Hastings denied rumors of a move to an ad-supported model.
I think it's a good thing that some people will miss the ad-free aspect of the service. In the last eight years, prices have been raised six times. The company would like to stop charging people more money, but that is probably not going to happen. I think it's a good idea to offer those who only want to watch Netflix occasionally a more affordable option.
I assume the ad-supported tier will be the cheapest plan, but I wouldn't mind if the company offered an ad-supported option at higher resolutions as well. I don't mind an ad if it means I can save a few bucks. I still want to watch my favorite shows in 4K because I am picky about image quality. I hope the ad-supported tier isn't limited to potato-quality 480p if Hastings really wants to give consumers more options.
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