Netflix will go where it once vowed never to tread in a bid to turn around its lacklustre earnings and its first drop in subscriber numbers since 2011.
Netflix co-chief executive Reed Hastings has long been outspoken against introducing advertising on the streaming platform, but he changed his tune after disappointing results for the first quarter of 2022 slashed the company’s share price by more than 25 per cent in after-hours trading on Tuesday.
Speaking at the announcement of Netflix’s quarterly earnings on Wednesday, Mr Hastings said the company was trying to “figure out” advertising on cheaper plans over the next couple of years.
“Those who have been following Netflix know that I have been against the complexity of advertising and a fan of the simplicity of subscription,” he said.
“But I’m 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.”
The potentially massive change to the Netflix model comes after the company revealed the loss of 200,000 customers in the first quarter of 2022 – and forecast the loss of another two million subscribers in the current quarter – despite raising prices on subscriptions and cracking down on password sharing.
What ads will look like on Netflix
Netflix will likely introduce a low-cost advertising plan without testing it first, as the company is confident it will work, Mr Hasting said.
Victoria University senior lecturer in screen media Marc C-Scott said increased competition from the likes of US streaming rivals HBO Max, Disney Plus and Hulu – all of whom plan to integrate advertising – meant it was inevitable Netflix would have to introduce different subscription models to remain competitive.
It’s unclear what form the advertisements will take on the platform, but Dr C-Scott said Netflix has several options.
“It could be ads as part of the library when you’re actually searching around – think of something like Spotify, where it’s built into the user interface,” he said.
“For shorter series you don’t want to have ads all the time, but it might be between each episode, you have a couple of ads.”
Dr C-Scott said Netflix can take advantage of its data and analytics to work out where best to place ads without disrupting the customer experience.
How ads could affect content
Professor Amanda Lotz of the Queensland University of Technology’s Digital Media Research Centre said whatever form advertisements take on the platform, Netflix would have to move “cautiously”.
Dr Lotz said subscriber-funded models create content differently to advertiser-funded models.
“The advantage of subscriber funding is that it allows a service to benefit from creating content that viewers really love,” she said.
Dr Lotz said offerings such as Netflix’s 2017 revival of American sitcom One Day at a Time showed the streaming platform – under its current subscription model – gains value from shows that are loved by a smaller-but-passionate viewership.
“In contrast, in an ad-supported system, the service is creating content to attract advertisers; it’s not trying to serve viewers,” she said.
“If the purpose is attracting attention, then it becomes less about having things that particular groups of people really love, and more about content that most people are like, ‘Yeah, that’s OK’.”