Streaming giant Netflix plans ad-supported layer

Netflix stock plummets 25% after losing 200,000 subscribers in the first quarter of the year.

Netflix had projected an increase of 2.5 million subscribers for Q1 2022, however it reported a loss of 200,000 subscribers in the January-March quarter. Netflix is anticipating a global subscriber loss of 2 million users in the next quarter. The last time Netflix lost subscribers was October 2011.

The company attributed slow growth to a few factors, including multiple users sharing a single account. “In addition to our 222 million paying households, we estimate that Netflix is being shared with over 100 million additional households,” the company noted in its letter to investors.

“Account sharing as a percentage of our paying membership hasn’t changed much over the years, but, coupled with the first factor (pace of growth in our addressable market is not directly in our control), means it’s harder to grow membership in many markets - an issue that was obscured by our COVID growth,” the letter read.

Further, company CEO Reed Hastings, said that the platform is now exploring an ad-supported layer in the next year or two. “One way to increase the price spread is advertising on low-end plans,” he said in the investor call.

“Those who have followed Netflix know that I have been against the complexity of advertising and a big fan of the simplicity of subscription. But I’m a bigger fan of consumer choice and allowing consumers who would like to have a lower price and are advertising tolerant to get what they want makes more sense. So we are looking at that over a year or two. But we will be offering even lower prices with advertising as a consumer choice,” said Hastings.

Netflix has a rather slow growth trajectory in India. According to research firm Media Partners Asia, it has only 5.5 million subscribers in India. In December 2021 Netflix dropped the price of its subscription plans in India to lure more subscribers to its platform. The company stated that it is seeing “nice growth” in multiple markets including India.

As per data and analytics platform App Annie’s State of Mobile 2022 report -- Disney+Hotstar is the most downloaded video streaming app in India, followed by MX Player and ZEE5. Netflix India didn’t make it to its top 10 list.

In markets like India the streaming service loses revenue on account of multiple users sharing a single account. Netflix has piloted a plan to share a single account among multiple households in Chile, Costa Rica, and Peru in a bid to monetise the 100 million households from where it is losing out revenue.