Netflix looks to bring in low-cost service with ads, curb password-sharing

An unexpectedly sharp drop in subscribers has Netflix considering changes to its service that it has long resisted: minimising password sharing and creating a low-cost subscription supported by advertising.

The looming changes announced late on Tuesday are designed to help Netflix regain momentum it has lost over the past year.

Pandemic-driven lockdowns that drove binge-watching have lifted while deep-pocketed rivals such as Apple and Walt Disney began to chip away at its vast audience with their own streaming services.

Netflix's customer base fell by 200,000 subscribers during the January-March quarter, the first contraction it has seen since it became available throughout most of the world outside of China six years ago.

The drop stemmed in part from Netflix's decision to withdraw from Russia to protest the military campaign against Ukraine, resulting in a loss of 700,000 subscribers.

Netflix projected a loss of another 2 million subscribers in the current April-June quarter.

READ MORE: Russia-Ukraine conflict contributes to fall in Netflix subscribers

Changes looming

The Los Gatos, California, company estimated about 100 million households are watching its service for free by using the account of a friend or another family member, including 30 million in the US and Canada.

“Those are over 100 million households already are choosing to view Netflix,” Netflix CEO Reed Hastings said. “We’ve just got to get paid at some degree for them.”

To prod more people to pay for their own accounts, Netflix indicated it will expand a trial programme it has been running in three Latin American countries—Chile, Costa Rica and Peru.

In this locations, subscribers can extend service to another household for a discounted price. In Costa Rica, for instance, Netflix plan prices range from $9 to $15 a month, but subscribers can openly share their service with another household for $3.

Netflix offered no additional information about how a cheaper ad-supported service tier would work or how much it would cost. Another rival, Hulu, has long offered an ad-supported tier.

While Netflix clearly believes these changes will help it build upon its current 221.6 million worldwide subscribers, the moves also risk alienating customers to the point they cancel the service.

Escalating inflation over the past year has also squeezed household budgets, leading more consumers to rein in their spending on discretionary items.

Despite that pressure, Netflix recently raised its prices in the US, where it has its greatest household penetration—and where it's had the most trouble finding more subscribers.

In the most recent quarter, Netflix lost 640,000 subscribers in the US and Canada, prompting management to point out that most of its future growth will come in international markets. Netflix ended March with 74.6 million subscribers in the US and Canada.

READ MORE: Netflix to begin charging users for sharing accounts