Netflix Co-CEO Ted Sarandos has confirmed that yes, the streaming giant will be introducing ads to its platform, while speaking at the Cannes Lions advertising festival on Thursday, June 23.
Following a steep decline in Netflix subscriptions and a drop in the company’s share price, Netflix announced that they’d be introducing an option to subscribe at a lower cost, but with the inclusion of ads, as well as an added fee for accounts that are active in multiple households.
Within the first quarter of 2022, Netflix has seen 200,000 people leave the service, which has resulted in the company’s value plummeting. Now, the company is hoping to entice customers who are happy to pay less for the service and put up with ads.
“We’ve left a big customer segment off the table, which is people who say: ‘Hey, Netflix is too expensive for me and I don’t mind advertising,’” Sarandos told Sway podcast host Kara Swisher while on the Cannes Lions stage “We adding an ad tier; we’re not adding ads to Netflix as you know it today. We’re adding an ad tier for folks who say, ‘Hey, I want a lower price and I’ll watch ads.’”
In late 2021, Netflix’s value was estimated at USD$300 billion, but is currently sitting at around USD$100 billion.
After laying off roughly 150 employees in May, the company performed a second round of lay offs this week, letting go of roughly 300 staff members on Thursday, June 23.
“Today we sadly let go of around 300 employees,” a Netflix spokesperson told Variety. “While we continue to invest significantly in the business, we made these adjustments so that our costs are growing in line with our slower revenue growth. We are so grateful for everything they have done for Netflix and are working hard to support them through this difficult transition.”
In entirely unrelated news, Netflix is also in the midst of offering one of the biggest cash prizes in reality competition history, in Squid Game: The Challenge, which will see 456 people compete for a grand prize of USD$4.56 million.
In this article, we break down the changes Netflix is considering, why, and how it will impact Australians.
Why Is Netflix Introducing Ads and Cracking Down on Password Sharing?
This year, many users have chosen to abandon the streaming giant, and that has been reflected in the company’s share price. In under four months, Netflix’s share price has dropped by two-thirds, after reaching its peak at the end of 2021.
On Wednesday, April 20, the company marked a share price plunge of 35.1% in just one day. This was the company’s largest one-day fall in over a decade.
What Changes Will Netflix Be Making?
Netflix Will Crack Down on Password Sharing
For years, people have been sharing their passwords to streaming platforms as a way to cut down on the cost of being subscribed to multiple services.
Until now, Netflix had allowed accounts to have multiple profiles, which allowed people residing in different households to share the same account.
With estimates that there are approximately 100 million households that are currently not paying for their own Netflix subscriptions, the streaming giant has decided to crack down.
One of the changes being trialled in Chile, Costa Rica and Peru currently is the ability to add sub-accounts for up to two people living outside the main residence, but it comes at a cost. To add a sub-account will cost an additional USD$3 (AUD$4) each month.
Netflix said that accounts being shared across different households was “impacting [their] ability to invest in great new TV and films for our members,” according to Chengyi Long, the director of product innovation.
“We’ve been working on ways to enable members who share outside their household to do so easily and securely, while also paying a bit more,” Long said in March.
While this change is currently being tested, there’s no word on if and when they plan to introduce it in Australia.
Netflix Will Introduce Ads at Reduced Subscription Price
Since its inception, one of the major benefits of paying for Netflix has been that there are no ads, but all of that could change in the future.
Now, the company is considering the option of adding a plan where subscribers who don’t mind dealing with advertisements can pay less for their subscriptions.
“Those who have followed Netflix know that I have been against the complexity of advertising, and a big fan of the simplicity of subscription,” said Reed Hastings, Netflix’s Co-CEO.
“But, as much as I am a fan of that, I am 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.”
When Will These Changes Take Place?
The New York Times has reported that Netflix “could introduce its lower-priced ad-supported tier by the end of the year, a more accelerated timeline than originally indicated”.
When the changes were first announced, the timeline was said to be within the next two years, but “the company told employees in a recent note… Netflix executives said that they were aiming to introduce the ad tier in the final three months of the year.”
The note adds: “Every major streaming company excluding Apple has or has announced an ad-supported service. For good reason, people want lower-priced options.”
So far, there’s no word on when or how subscribers would see the ads if they selected this plan, ie, whether they would air before a film or series, during, or both.