After saying for years that Netflix would remain as a subscription-only service, co-CEO Reed Hastings has revealed the company is now looking at an advertising supported model.
Speaking to investors following the company’s Q1 2022 announcement, Hastings said the company expects to look at what an ad-supported platform would look like “over the next year or two.”
Netflix COO Greg Peters added that advertising “is an exciting opportunity for us.”
“Those that have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription,” Hastings said. “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.”
“I don’t think we have a lot of doubt that [the ad model] works,” added Hastings, citing Hulu and HBO Max as well as Disney Plus’s plans to launch an AVoD platform. “I’m sure we’ll just get in and figure it out — as opposed to test it and maybe do it or not do it.”
Netflix revealed it has lost 200,000 global subscribers during Q1 2022, far short of the company’s own expected growth of 2.5 million subscribers during the quarter. In Europe, the Middle East and Africa it reported a loss of 300,000 subscribers. The losses are expected to continue into Q2, when Netflix predicts it will lose an additional 2 million subscribers.
Analyst Paolo Pescatore tells TVBEurope that ultimately the loss in subscribers in Q1 is a “drop in the ocean compared to Netflix’s huge base.”
“The coming quarter is one that typically sees lower growth due to seasonality,” he adds. “This coupled with the holiday Easter season, more people travelling and with ongoing economic challenges could see even more cancel their subscriptions.”
Netflix’s chief financial officer Spencer Neumann said the company will now look to “pull back” on its content spending in order to increase its revenue growth.
Netflix attributed its slow down to a number of factors, including account sharing, continued disruption caused by the pandemic and increased competition from rival streamers. In its shareholder letter, the company said that of its roughly 222 million paid subscriptions, more than 100 million were being shared with users outside of paying households.
“Increasing revenue and driving engagement must be a priority,” said Pescatore. “There are plentiful opportunities to offer other features, services and billing options. The move towards lower-cost options suggests a focus on still acquiring subscribers.
“Ultimately users sign up for blockbuster content. Without unique storytelling users will go elsewhere.”