The streaming giant finds itself at a critical moment after announcing it has lost around 200,000 subscribers, with the prospect of losing another 2 million in the next quarter. As a response to this dramatic loss of users, Netflix plans to launch a lower-cost version with ads.
This was the answer from Netflix co-founder and CEO Reed Hastings on the decision to include this new version on the platform. "Those who have followed Netflix know that I've been against the complexity of advertising and I'm a big fan of the simplicity of subscription," he said in a conversation with major investors. "I'm a big fan of consumer choice and allowing consumers who want a lower price and tolerate advertising to get what they want makes a lot of sense," Hastings added, explaining that they will work on this new ad-supported version and that it will be ready in roughly one to two years.
But what's behind this user retention crisis on the platform? Netflix attributes the decline to password sharing among users — shared accounts. The increased competition in the streaming market has also hit the company hard. Netflix estimates that of the 222 million households paying for the service, the subscription is shared with another 1 billion households, leading to considerable losses. In response, Netflix is testing the possibility of charging users who share accounts. The company has also announced budget cuts in audiovisual productions to moderate losses.
However, Netflix isn't alone in considering ads on its platform. Both Disney and HBO have previously expressed interest in incorporating ad-supported models. JP Morgan's Chief Operating Officer, Greg Peters, argues that including ad-supported models on streaming platforms would be beneficial, as it "guarantees revenue from everyone watching the content offered."
