by Michael Lidtke and Mae Anderson
SAN FRANCISCO ( Associated Press) — An unexpected drop in subscribers sent Netflix shares into freefall on Wednesday, forcing the company to consider experimenting with ads and — holding on to its remote — on those millions of freeloaders. Tackling who use passwords shared by friends or family.
The astonishing net loss of 200,000 customers shocked investors, who were told by the company to expect a profit of 2.5 million customers. Shares of Netflix sank 35% on the news, falling to their lowest level since the start of 2018.
Netflix estimates that around 100 million homes worldwide — or one out of every three homes that use its service — are streaming for free. “We have to pay for them to some degree,” co-CEO Reed Hastings said during a shareholder call on Tuesday.
Netflix is already experimenting with programs in Latin America that use soft touch to unsubscribe to sign up. For example, in Costa Rica, Netflix plan prices range from $9 to $15 per month, but subscribers can create sub-accounts for up to $3 per month for up to two other individuals outside their household. On Tuesday, Hastings suggested the company could adopt something similar in other markets.
How Netflix will stack the odds isn’t clear, and Hastings indicated that the company will probably spend the next year assessing different approaches. In a test last year, Netflix prompted viewers to verify their accounts via email or text.
Some existing subscribers say that even a slight nudge can prompt them to sign off to reduce password sharing.
Alexander Klein, who lives near Albany, NY, has subscribed to Netflix since 2013 and shares his account with his mother-in-law. While he loves the service, rising prices and the loss of licensed shows have angered him — and any password-sharing action may be the last straw.
“If they start cracking down on password sharing and I’m only paying the full $15 (a month) to see one person at a time, that’s disappointing,” he said. “If they decide to do so, I will cancel.”
Netflix is already making up for the loss of more subscribers by attempting to remove freeloaders. The company estimated that by the end of June, its subscriber base would drop by another 2 million. That would still leave Netflix with 220 million subscribers worldwide, more than any other video streaming service.
Despite some fears that Netflix’s action on password sharing could encourage other streaming services to follow suit, experts say it’s unlikely.
“I think we’ll see competitors take different strategies here,” said Raj Venkatesan, professor of business administration at the University of Virginia. “Some will follow Netflix’s lead and crack down on password sharing. Others will use this as a differentiator and promise simplicity by saying you can have one password for the family. ,
Over the years, amid rapid global growth, Netflix has looked the other way at the secretive practice of customers sharing passwords outside of their homes. And Hastings has spoken passionately about keeping Netflix ad-free in the past.
But competitive pressure is mounting. Deep-pocketed rivals such as Apple, Walt Disney and HBO have begun to take away Netflix’s dominance with their own streaming services. The easing of the pandemic is giving consumers entertainment options beyond watching their favorite shows, and rising inflation is making families think twice about how much they are willing to pay for different streaming services.
All this has given investors great hesitation for months. Wednesday’s sale came on top of earlier trouble for the stock, which has lost 62 percent of its market value since late 2021, wiping out $167 billion in shareholder assets.
Syracuse University professor J.J. Christopher Hamilton said Netflix has no choice but to try new ways to increase its profits to please shareholders.
“It looks like this is Netflix’s ‘come-to-Jesus’ moment,” said Hamilton, a former attorney for the film studio. “He was able to be stubborn and play a role as a disruptor for a long time. But now the honeymoon is over and he has to face the realities of business.
Hamilton believes that Netflix’s offering of a lower-priced version of the service that includes ads will be warmly received by consumers wanting to save money, as long as customers are willing to pay more, however. Commercials can binge-watch without interruption.
According to a recent study by consulting group Accenture, advertising revenue in streaming services is likely to grow more rapidly than subscription revenue during the next five years. By 2025, Accenture expects ad sales in video services to total $21 billion annually, up from just $1 billion in 2017.
Netflix is counting on bringing some advertising into the mix to help boost its profits, which totaled $1.6 billion during the January-March period, a 6% drop from the same period last year.
However, the action may be more problematic when the password is shared.
“I think we may be at the point of no return for password sharing,” said Ben Trenor, a digital marketing strategist for Time2Play, a gaming site that recently criticized the “streaming thug” phenomenon. had studied. “I think there’s a chance if you take someone off their family account, they can’t pick up their account.”
Netflix has shied away from customer backlash in the past. Back in 2011, it unveiled plans to start charging for its then-nascent streaming service, which was bundled with its traditional DVD-by-mail service for free. In the months following that change, Netflix lost 800,000 subscribers, prompting Hastings to apologize for halting the spin-off’s execution. But the company retaliated.
Meanwhile, commercials have never been a favorite of Hastings, who has long seen them as a distraction from the entertainment Netflix provides.
Ravin Ramjeet, 41, who lives in London, will have none of these.
“I specifically signed up for Netflix back in the day because there were no ads,” he said. “The ads are too intrusive and they break your concentration and the continuity of the show. You can be in a good, intense scene — you’re really into it — and all of a sudden they get cut professionally. ,
Veterans like David Lewis in Norwalk, Connecticut, say change is not a big deal. Lewis shares a premium plan with his three adult children and some of their friends and says they will keep it, even if they have to cut friends off and each have to pay for their own accounts.
“We’ll keep Netflix and pay for four in our family, even if it’s more,” he said. “We love the service and what it offers.”
Netflix began moving in a new direction last year when its service added video games at no extra charge in an effort to give people another reason to subscribe.
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In a story published on April 20, 2022, about Netflix considering adding advertising to its video streaming service, the Associated Press erroneously reported that consulting firm Accenture expects advertising to total $21 billion annually in video services by 2027. Is. Accenture expects advertising in video services to reach that level by 2025.
Anderson reported from New York. Associated Press technology writer Matt O’Brien in Providence, RI also contributed to this report.
