Will the streaming giant survive a record loss of subscribers?
The French team of Netflix confirmed on Tuesday (June 28) that adverts will soon be coming to the streaming service.
The TV and film platform, which until now has not hosted any advertising, will introduce a tier system. It will likely create a lower subscription level that includes ads and maintain a higher subscription tier with no advertising.
"We do not have a precise timetable yet," said Anne-Gabrielle Dauba-Pantanacce, director of communication of Netflix in France. "We are actively working on it (...) it is a priority, this idea of giving more options to our subscribers in a context of high inflation," she stressed.
A note shared by Netflix executives with employees in May 2022 mentioned that this new tier system could be introduced in the last three months of the year.
"Every major streaming company, excluding Apple, has, or has announced, an ad-supported service," the note said. "For good reason, people want lower-priced options."
Why is this happening?
In late April, Netflix announced its biggest loss of subscribers in the past ten years, with 200,000 people leaving the platform in the first three months of 2022.
Netflix’s loss of subscribers came as a shock to many outside the industry, who never expected such a popular service to suddenly fall so hard.
Shares for the company tumbled in the aftermath of the announcement, striking another blow.
In May, Netflix was again in the headlines when news broke that the company had laid off 150 employees - about 2 per cent of its total staff.
Netflix is now planning for strategic changes that should keep the company afloat - so aside from advertising what other changes can we expect?
Limiting password sharing
In the aftermath of the loss of subscribers, Netlix announced that the company will now crack down on password sharing, an activity that it has so far turned a blind eye to.
Netflix says that subscribers will still be allowed to share an account with other households, but they’ll have to do so at a higher cost.
The company is already trialling this in some countries in South America, where it’s charging account holders as little as $3 a month to share their subscriptions with a maximum of two other people living in separate households.
"We're working on how to monetize sharing," said Hastings.
"These are over a hundred million households who are already choosing to use Netflix, they love the service, we've just got to get paid to some degree for that."
But Måns Ulvestam, co-founder of Acast, the largest global podcast platform, thinks not many people would be willing to pay more for Netflix, as a cost of living crisis meets fierce competition from the likes of Amazon Prime, Apple TV and Disney +.
“I believe we're at peak subscription now, so people simply can't afford any more subscriptions,” he tells Euronews.
“It's unsustainable,” Ulvestam adds, talking about the subscription model. “The streaming services are all putting so much money into production, everyone wants to produce the local “Squid Game” that can be turned into a global success, but as the production companies are having the time of their life, the consumers simply cannot afford all of the subscriptions that they would like.”
Licensing its content
Taking inspiration from its competitors, Netflix could increase its profitability by licensing its content, Xander Ross, Co-founder of Film & TV PR agency Percy & Warren tells Euronews.
The company used to sell its merchandise through individual deals with retailers like Target, as they did for the popular series 'Stranger Things'. But in 2021 it finally decided to develop its own online store, selling directly to customers.
“Netflix isn’t big on licensing merchandise,” says Ross. “If you compare [Netflix] to what other streamers like Disney are doing, then it’s just not even in the same ballpark.
“Disney monetises its content across multiple streams, from theme parks to toys, food to clothing. Meanwhile, Amazon is bringing people to its platform as a means of promoting its shopping platform and vice versa – Netflix is purely an entertainment service, so it's neither able to exploit the success of its products through merchandise nor have diversified services to bring in subscribers.”
But Ross believes that Netflix could easily make this move if it wanted to. Monetising its merchandise wouldn’t impact subscribers’ wallets directly but it could be a way for the company to gain more profits.
The unexpected crisis suffered by Netflix might also force the streaming giant to revisit its content strategy, either by cutting production costs or being more selective of the material they license on the platform.
It’s hard to predict what direction such changes could take: either Netflix could decide to cut down on producing costly, original features and TV shows—which would certainly cause an outcry among audiences—or it could refine its offer by focusing more on what its users want, says Ross.
“Netflix is so quick to be judge, jury, and executioner on shows they deem to be duds because they don’t have huge followings from the start – often these are only victims of its algorithm anyway and might have flown with the right targeting push behind,” Ross says.
“Social feeds are awash with people complaining about a show they loved being cancelled after 1 series. Rather than cultivating communities, they focus on volume and numbers, failing fast and moving on.”
In 2020, after Netflix cancelled popular shows like 'GLOW', 'Chilling Adventures of Sabrina' and 'The Dark Crystal: Age of Resistance', causing an uproar among fans, the company's executive Bela Bajaria said that "it's always painful to cancel a show."
She defended the company saying Netflix does not cancel more shows than other networks and platforms, with a renewal rate of 67 per cent.