SAN FRANCISCO – An unexpectedly sharp drop in subscribers has prompted Netflix to consider changes it has long resisted: minimizing password sharing and creating low-cost subscriptions that are supported by advertising.
The upcoming changes, announced late Tuesday, are designed to help Netflix regain the turnovers lost over the past year. The blockage caused by the pandemic, which led to the necessary views, was lifted, while deep-pocket competitors such as Apple and Walt Disney began to beat off their large audiences with their own streaming services.
Netflix’s customer base shrank by 200,000 subscribers in the January-March quarter, the first reduction seen in streaming service since it became available in most countries except China six years ago. The decline is partly due to Netflix’s decision to leave Russia to protest the war against Ukraine, which led to the loss of 700,000 subscribers. Netflix forecasts the loss of another 2 million subscribers in the current quarter of April-June.
The erosion, which came after a year of gradual slowdown, shocked Netflix investors. Shares fell more than 25% in expanded trading after Netflix showed its disappointing performance. If the fall in shares stretches into a regular trading session on Wednesday, Netflix shares will lose more than half of their value this year – destroying about $ 150 billion in shareholder wealth in less than four months.
Los Gatos, Calif., Estimates that about 100 million families worldwide watch its service for free using a friend or other family member’s account, including 30 million in the United States and Canada.
“It’s more than 100 million families who are already choosing to watch Netflix,” said Netflix CEO Reed Hastings. “We just need to pay for them to some degree.”
To get more people to pay for their own accounts, Netflix has said it will expand a trial program in three Latin American countries – Chile, Costa Rica and Peru. In these places, subscribers can distribute services to another family at a reduced price. For example, in Costa Rica, Netflix plan prices range from $ 9 to $ 15 per month, but subscribers can openly share services with another family for $ 3.
Netflix did not offer additional information on how cheaper ad-supported services will work and how much it will cost. Another competitor, Hulu, has long offered an ad-supported level.
While Netflix clearly believes these changes will help it build on its current 221.6 million subscribers worldwide, these steps also run the risk of disconnecting customers to the point that they will be repealed.
In 2011, Netflix suffered from a negative customer reaction when it announced plans to start charging for the then-born streaming service, which was free bundled with the traditional DVD mail service before its international expansion. In the months since the change, Netflix has lost 800,000 subscribers, prompting an apology from Hastings for failing to run a spin-off.
Tuesday’s announcement was a sober decline for the company, which was backed two years ago when millions of home consumers were desperately looking for distractions – a void Netflix was happy to fill. In 2020, Netflix added 36 million subscribers, the largest annual increase since the launch of the streaming video service in 2007.
But Hastings now believes that these huge achievements could have blinded the leadership. “COVID has made a lot of noise from how to read the situation,” he told a video conference on Tuesday.
Netflix started moving in a new direction last year when its service added video games at no extra charge, trying to give people another reason to subscribe.
The escalation of inflation over the past year has also shrunk household budgets, forcing more and more consumers to restrain their spending on items of their choice. Despite this pressure, Netflix recently raised prices in the U.S., where it is most prevalent in families – and where it has had the most trouble finding more subscribers.
In the last quarter, Netflix lost 640,000 subscribers in the U.S. and Canada, prompting management to note that much of its future growth will occur in international markets. Netflix ended March with 74.6 million subscribers in the US and Canada.