Netflix shocked the industry April 19 with its underperformance in Q1 2022: The streamer didn’t just miss its goal, it actually lost 200,000 subscribers.
Presumably, it’s not unrelated that company CEO Reed Hastings announced he’s considering the biggest shakeup to Netflix’s subscription offerings since most of us ditched our DVD queues. Like Hulu, HBO Max, Peacock, and Paramount+, Netflix may introduce a lower-cost, ad-supported version.
Netflix is an anomaly in its refusal to consider an ad-funded tier to date. On March 4, even Disney+ announced it would roll out a cheaper version with targeted ads.
In his Q1 wrapup interview, Hastings said, “Those that have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription. But as much as I’m a fan of that, I’m a bigger fan of consumer choice. And allowing consumers who would like to have a lower price and are advertising-tolerant, get what they want, makes a lot of sense.”
Netflix is currently $15.49 a month in the U.S. The company said on Tuesday it expects to lose two million global paid subscribers in the current quarter. Lowering prices could result in greater retention, especially for more casual users. And it’s not an absolute shock. The company’s CFO, Spencer Neumann, previously hinted that diversifying their revenue stream could be in the offing.
“It’s not like we have religion against advertising, to be clear,” Neumann said at a Morgan Stanley investment conference in March. “That’s not something that’s in our plans right now,” but he added “never say never.”
Introducing advertising would indeed open up a whole new revenue stream for the company, but it would also mean a major corporate expansion: having to hire a vast ad sales staff. Though Netflix’s much-lauded (and criticized) algorithm seems like a clients’ dream for targeting purposes.
Hastings’ comments likely aren’t just responding to the longer-term trend the company’s seeing in 2022; he’s almost certainly trying to calm investors. Company stock (NFLX) sank 25% after the news of the Q1 subscriber loss April 19, a loss of $85 a share. Here’s another sign of a downward trend: in the fall, the Netflix share price was roughly $700. Now it’s less than $300.