Netflix announced its first major subscriber loss in a decade after pulling out of Russia, also saying 100 million households are using Netflix without paying for it.
Now, the streaming platform suggests it will start running ads, cracking down on password sharing, and aiming for a quality-over-quantity approach to content.
Watch the video to learn more about Netflix’s record loss
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These measures could include charging users fees for sharing their accounts outside their homes.
The global streaming juggernaut ended the first three months of the year with 200,000 fewer subscribers, well below its forecast of gaining 2.5 million paying customers.
The company lost 700,000 subscribers in early March after its decision to suspend service in Russia after the country launched its invasion of Ukraine.
Netflix, which currently has 221.6 million users, saw record demand growth at the start of the pandemic as people around the world were stuck at home and flocked to their screens to watch shows and movies. a lot of.
But password sharing and fierce competition from other streaming platforms have made it harder for Netflix to attract new viewers.
To increase the number of subscribers and limit revenue loss, the company suggested implementing a number of new measures, such as charging users a fee for sharing passwords and introducing a cheaper plan and funded by advertising.
Here’s everything viewers can expect from Netflix in the future.
A potential crackdown on password sharing
More than 100 million households use Netflix without paying, the company said in a letter to shareholders on Tuesday.
Netflix admitted that it allowed users to share their passwords because it brought more people to its platform.
But increased competition from Amazon Prime Video, Hulu, Disney+ and others has made it even harder for the company to grow its membership base.
“Our relatively high household penetration — if you include the large number of households sharing accounts — combined with competition, creates headwinds for revenue growth,” Netflix wrote in its letter.
Last month, Netflix said it would start testing ways to make users in Chile, Costa Rica and Peru who share passwords pay additional member fees.
That model could expand to other countries, executives said during the company’s earnings call on Tuesday, but it was unclear when those changes would be applied.
A cheaper, ad-supported service
Netflix co-founder Reed Hastings has long resisted running ads, but the company reversed course on Tuesday.
“Those who have followed Netflix know that I have been against the complexity of advertising and a big fan of the simplicity of subscription,” Hastings said in a taped interview.
“But as much as I’m a fan of that, I’m a bigger fan of consumer choice.
“And allowing consumers who want a lower price and who are ad-tolerant to get what they want makes perfect sense.”
Hastings attributed the decision to adopt an ad-based subscription model to Netflix’s competitors, suggesting the streaming service could outsource ad targeting.
“In terms of profit potential, the online advertising market has definitely moved on and you no longer need to include all the information about people you used to,” he said.
“We can stay out of that and really focus on our members, creating this great experience.”
The move to ads was met with skepticism by some Wall Street analysts, including Rich Greenfield, partner and media and technology analyst at LightShed Partners.
He said adding ads would likely result in reduced viewing time per user per day and ultimately increased user revenue.
“The question for Netflix and ads is, is this the answer they really believe in or is it the desperation of a management team that doesn’t know what’s happening to their business right now?” Greenfield wrote in a note to clients.
“Reduce” content spend
To further boost revenue growth, Netflix said it would also “reduce” spending on its movies and TV shows.
“We are trimming some of our spend growth, both content and non-content spend,” CFO Spencer Neumann said in a taped interview.
“We’re trying to be smart and careful in terms of reducing some of that expense growth to reflect the realities of growing business revenue,” he said.
It’s a move that analyst Greenfield said was necessary but perhaps insufficient.
“The biggest issue that really hasn’t been talked about is that Netflix’s content, especially its English content, just doesn’t resonate with the level of spending,” he wrote.
At $17 billion a year, Netflix currently spends more on content than any of its competitors, Greenfield noted.
While that level of spending should likely be reduced, Netflix needs to rethink its content strategy more broadly, Greenfield said.
“While the level of consumer appeal of Netflix content has always mattered, the need for better content has become much more important as the level of competition has increased over the past two years,” Greenfield said.
“By ‘best’ we don’t mean quality, we mean content that captures the zeitgeist, be it The crown or stranger things or squid game or Tiger king.
“Having a volume of ‘good enough’ content is no longer enough.”