Netflix Inc. said it is exploring offering a lower priced ad-supported version of the platform to boost its subscriber base, after the streaming giant posted its first quarterly subscriber loss in more than a decade.
The Wall Street Journal reports the move is a significant change for a company that has sold itself since its inception as a commercial-free haven for its members. Netflix is grappling with slowing revenue growth caused by stiffer competition from rival services and rampant account sharing among its customers.
In a Tuesday analyst interview to discuss the company’s first quarter-results, Netflix Chairman and Co-Chief Executive Reed Hastings said an ad-supported version of Netflix makes a lot of sense.
“Those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription,” Mr. Hastings said. “But as much as I’m a fan of that, I’m a bigger fan of consumer choice.”
Netflix shares were 25% lower in after-hours trading. Through Tuesday’s close, the stock has declined by more than 40% so far this year.
The company blamed password sharing among its members and increased streaming competition for pressuring revenue growth. Netflix estimated that besides its almost 222 million paying households, the service is being shared with an additional 100 million homes including 30 million in the U.S. and Canada.
In its letter to investors, Netflix said it is testing password-sharing subscription models that it believes will allow it to monetize sharing and build revenue. Mr. Hastings said password sharing combined with competition “is what we think is driving the lower acquisition and lower growth.” He added that when Netflix was growing fast, trying to reduce password sharing “wasn’t a high priority to be working on.”
The streaming company said revenue growth has slowed considerably after years of 20%-plus gains. Revenue in the first quarter rose roughly 10% to $7.87 billion, below analysts’ projections of $7.93 billion.
Netflix warned that gains made during the Covid-19 pandemic hid the fault lines that have emerged in its business over the past few years. “Covid clouded the picture by significantly increasing our growth in 2020, leading us to believe that most of our slowing growth in 2021 was due to the Covid pull forward,” the company said in its letter.
With a rate of growth that has been the envy of the industry for more than a decade, Netflix has long been seen as a barometer for streaming, and any challenges it faces might have broader implications for its rivals.
Netflix’s subscription decline brought its paid global subscriber base to 221.6 million, down from 221.8 million in the prior quarter. Net profit was $1.6 billion, down from $1.71 billion a year earlier.
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