Netflix lost 200,000 subscribers globally in the first quarter of 2022, the first time the company saw its subscriber growth turn negative in more than a decade. Going forward, the company is looking to monetize shared accounts, while also exploring the possibility of a lower-priced plan that includes advertising.
Both of those steps are huge departures for Netflix, which has in the past mostly ignored account sharing and dismissed the idea of ad-supported streaming. "Allowing consumers who would like to have a lower price and are advertising-tolerant to get what they want makes a lot of sense," said Netflix co-CEO Reed Hastings during the company's earnings call Tuesday afternoon.
Hastings said that the company was looking into the possibility of a lower-priced, ad-supported tier now, and may launch it within the next two years. "Think of us as quite open to offering even lower prices with advertising as a consumer choice," he said.
More immediately, Netflix is looking to lean on a segment of the market that knows Netflix all too well: an estimated 100 million households that participate in account sharing. “This is a big opportunity as these households are already watching Netflix and enjoying our service,” the company said in its letter to investors. “While we won’t be able to monetize all of it right now, we believe it’s a large short- to mid-term opportunity.”
Netflix COO Greg Peters said during Tuesday’s earnings call that the company is looking to monetize account sharing by asking people who share accounts with family members who don’t live in the same household to pay a bit more — something the company recently began to test in South America.
“We’re trying to find a balanced approach here,” Peters said, adding that it may take up to a year to roll out those changes globally. It will take a while to work this out and to get the balance right,” he said.
In its letter to investors, Netflix had attributed part of this downturn to its decision to leave Russia as a result of the country’s invasion of Ukraine, detailing that this resulted in a net loss of 700,000 subscribers.
However, Netflix executives also admitted that they had overestimated the company’s near-term growth potential following a massive wave of subscriber additions early during the pandemic. Instead, the company is dealing with a number of issues, which include ongoing COVID-19 uncertainties as well as a slowed uptake of smart TVs due to supply chain disruptions. Finally, executives specifically called out growing competitive pressure in the streaming market — a departure from statements made in the past.
Netflix executives were frank about the fact that there is no quick fix to those problems, and forecasted that the company will lose another 2 million subscribers in Q2, compared to the 1.5 million it added in the same quarter last year. That number alone was enough to send investors to the hills; the share price is down close to 23% in after-hours trading.
Update: 3:27 p.m. PT: This post was updated with additional details on how Netflix intends to monetize account sharing and its plans to explore an ad-supported tier.