Media Future of TV

Netflix admits ads are incoming as millions of subscribers look to cancel

By John Glenday | Reporter

Netflix

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Video Streaming article

April 20, 2022 | 5 min read

Netflix has dropped its longstanding opposition to a budget ad-supported subscription tier after taking a pounding from shareholders following the revelation that it lost 200,000 subscribers in the first quarter – the first decline in a decade.

In an earnings conference call chief executive officer Reed Hastings announced the volte-face in the name of “consumer choice,” promising to introduce a commercially-funded tier within “the next year or two.”

Netflix

A subscriber slump has broken Netflix’s opposition to an ad-supported tier

The U-turn is a tacit acknowledgement by Hastings that resistance to advertising is no longer tenable in the face of a brutally competitive subscription landscape and spiraling inflation, evidenced by the streamer being forced to hike prices across the UK and Ireland for the second time in 18 months when it upped the cost of its premium plan by £1 to £10.99.

Inflation is forcing households to reassess discretionary spending, with research from The Trade Desk suggesting that £20 is the maximum most households will contemplate spending on subscription services. Compounding this issue is a continued ratcheting up of production costs, which threaten to make Netflix’s current business plan unviable.

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That process has seen Brits cancel streaming services in droves as a love affair with streaming turns into a nasty breakup.

Patrick Morrell, director of strategic publishing and TV development, The Trade Desk, said: “After the boom in new joiners during the pandemic lockdowns, the numbers have fizzled. These results have been particularly impacted by the interruption of its business in Russia and booming inflation across the globe, which is leading many consumers to reassess their monthly outgoings as streaming subscriptions are considered a luxury ‘extra.’

“As household budgets tighten, ad-funded TV is an increasingly popular choice and one that makes good sense for streamers to offer. Discovery is leading the way with its recently-announced ‘Ad-lite’ product, while Disney has announced plans to offer an ad-supported plan later this year in addition to its standard paid-for service. We expect to see a proliferation of these types of hybrid offerings across the streaming sector in the next 12 months – the question is, will Netflix leave the strategies of its competitors unanswered?”

Netflix partially attributes its present malaise to its withdrawal from the Russian market, which cost it 700,000 subscribers at a stroke, but expects further losses over the coming months. In response, Netflix has already announced a crackdown on the estimated 100m households that flout rules on password sharing.

Last month Netflix chief financial officer Spencer Neumann gave the first public indication that Netflix was charting a different course, saying “never say never” when asked about revenue diversification.

Media Future of TV

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Netflix, is an American entertainment company founded by Reed Hastings and Marc Randolph on August 29, 1997, in Scotts Valley, California. It specializes in and provides streaming media and video-on-demand online and DVD by mail. 

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