Netflix co-CEO Reed Hastings said on Tuesday’s earnings call that the streamer is exploring introducing an ad-supported tier at a lower cost, and that such a model could be phased in “over the next year or two.”
Hastings even acknowledged the success of an ad-supported model at Hulu, how such a model will be introduced on HBO Max and that “we don’t have a lot of doubt that it works” for those streamers.
“Those who have followed Netflix know I’ve been against the complexity of advertising and in favor of the simplicity of a subscription. But as much as I’m a fan of that, I’m a bigger fan of consumer choice,” Hastings said on Tuesday’s call. “And allowing consumers who would like to have a lower choice and are advertising tolerant get what they want makes a lot of sense. That’s something we’re looking at now and figure out over the next year or two, but think of us as quite open to offering even lower prices with advertising as a consumer choice.”
Hastings added that such a move was not a “short-term fix” to attracting more consumers or driving more revenue. The call’s moderator pointed out that Hastings, in the past, has been hesitant about introducing ads to Netflix and that he didn’t see the incremental profit potential of an ad-supported tier. However, Hastings acknowledged that the online ad market has now “advanced” to not have to include all the information and data about people that it used to.
“Once you start offering a lower price plan with ads as an option, some consumers take it, and we’ve got a big installed base that probably are quite happy with where they are. So think of it as it would phase in over a couple of years in terms of material volume,” he said.
Hastings also made clear that if you still want the ad-free option you’ll still have that, but they’ll now cater to other tiers as well.
Analysts have been speculating for years that ads could become a possibility at Netflix, but this is among the first time that Netflix brass have openly embraced the idea.
Netflix had a weak start to the 2022 fiscal year, reporting a loss of 200,000 subscribers in Q1, dipping to 221.64 million from 221.8 in Q4 of 2021. And its current projections for next quarter could be even worse, potentially falling another 2 million. But the company also chalked some of that loss up to ongoing password sharing among subscribers, estimating that 100 million households worldwide, including 30 million in the U.S. and Canada, may be watching Netflix and engaged with it via password sharing. And the streamer hinted that methods of cracking down and asking users to pay more to share with those outside your household may be on the way soon.