Ultimatum

Netflix lost 200K subs last quarter and expects to lose millions more. Now ads could be its saving grace

Wednesday, April 20, 2022 by Robinhood Snacks |
From “never ads” to “never say never” to ads (Ethan Miller/Getty Images)

From “never ads” to “never say never” to ads (Ethan Miller/Getty Images)

Binged “Anatomy of a Scandal”... Netflix knows we can devour a limited series as if we had unlimited time. The streaming leader revealed yesterday that it lost 200K subscribers last quarter (it was expected to add 2.5M). Even worse: it expects to lose 2M global subs this quarter. Flix shares plunged 25% after hours and are down over 40% this year.

  • Old plot: Netflix saw explosive growth in 2020 as Emily in sweats binged “Emily in Paris.”
  • Current plot: The pandemic boom led to subscription saturation (#subscripturation) and slowing growth. Netflix added 18M paid subs last year, versus 37M in 2020. Now it’s losing subs.
  • New plot: To spur growth, Netflix has expanded beyond content. Last year it launched a show-themed merch shop (think: “Ultimatum” tees) and five in-app games. It’s also expanded into “experiences” like a “Stranger Things” Upside Down world in NYC.

Netflix’s ultimatum... Unlike Hulu, HBO Max, and other ad-supported streamers, Netflix has rejected commercials, relying instead on subscription $$. In 2019, CEO Reed Hastings said he’d never do ads, “period.” But high prices (#flation) + subscription overload (#subscripuration) have made it harder for consumers to afford multiple streamers. Fast-forward to now:

  • Netflix CFO Spencer Neumann recently cracked the door open to ads, saying "never say never" to an ad-supported tier.
  • Even Disney+ is launching a lower-priced ad tier to hit its subscription goals.
THE TAKEAWAY

It’s the price-cutting paradox… Lowering prices can boost revenue — but only if customers who were paying “premium” prices don’t downgrade. Netflix’s $15.50/month standard plan may be out of reach for many budget-conscious households, so adding a cheaper plan supported by commercials could help it grab a new market. The risk: subscribers who are paying for pricier ad-free plans might downgrade (that hasn’t happened to HBO Max yet). As streaming competition intensifies, it may be worth the risk for the Flix.