An unexpectedly sharp drop in subscribers has Netflix considering changes they have resisted for a long time—minimizing password sharing and creating a low-cost subscription supported by ads.
The looming changes announced late Tuesday are designed to help Netflix regain the momentum it lost over the past year. The losses can be attributed to the pandemic-driven lockdowns that drove binge-watching being lifted, and Netflix’s rivals Apple and Walt Disney chipping away at its vast audience with their own streaming services, AppleTV+ and Disney+.
Netflix’s customer base also fell by 200,000 subscribers during the January-March quarter, the first contraction the streaming service has seen it’s been available throughout most of the world other than China six years ago. This comes after a year of progressively slower growth which rattled investors in the process. Shares plunged by more than 25 percent after Netflix revealed its disappointing performance.
If this continues passed today, Netflix’s shares will have lost more than half of their value so far this year—wiping out about $150 billion US in shareholder wealth in less than four months. It gets even worse for the Los Gatos, California-based company because it’s estimating about 100 million households worldwide are watching its service for free by using a friend’s account or another family member’s. This includes 30 million in the U.S. and Canada. “Those are over 100 million households already are choosing to view Netflix,” Netflix CEO, Reed Hastings said. “We’ve just got to get paid at some degree for them.”
Right now, the company is testing a new feature in Chile, Costa Rica, and Peru where subscribers can add to “sub accounts” for up to two people outside their homes at reduced prices. However, it may not launch globally for a while. “Just to set your expectations, my belief is that we’re going to go through a year or so of iterating and deploying and all of that so that we get that solution globally launched, and including in markets like the United States,” said the chief operating officer, and chief product officer for Netflix, Greg Peters.
However, the response to this news has been predictably negative, especially on Twitter. Many are upset by the fact they will have to watch ads if they want to watch with their families or friends. According to German statistics and data company Statista, there were around 18 million Canadians using Netflix in 2020 via the app or website at least once per month, up from 16.2 million the previous year.
This is most likely due to the pandemic as Netflix said. “We’re not trying to shut down that sharing,” said Peters. “But we’re going to ask you to pay a bit more to be able to share with her, so she gets the benefit and the value of the service, but we also get the value of the revenue associated with that viewing.”