Streaming giant Netflix is set to introduce a lower-cost subscription tier that includes ads, the company told its employees.
The service is known to be completely ad-free, unlike competitor Hulu, but recent hikes in prices and drops in subscribers have signaled that providing a lower-cost subscription tier that features advertisements may bring customers back.
From its earliest days as a streaming platform, Netflix consistently stated that it would not place ads on its content, but the sentiment has seemingly changed due to the needs of the current market.
The change, which the company aimed to implement further in the future, will take place during the last few months of 2022, according to a report in The New York Times.
“Every major streaming company excluding Apple has or has announced an ad-supported service…For good reason, people want lower-priced options,” the note to Netflix employees states, as quoted in The New York Times.
Ads on Netflix could provide low-cost solution for subscribers
Streaming giant Netflix lost subscribers in the first three months of this year after years of explosive growth, sending the company’s shares plummeting.
Netflix announced it lost 200,000 subscribers in the first quarter. The drop represents a huge loss for Netflix, which originally estimated it would add 2.5 million subscribers in the same period.
It warned investors it expected another two million subscribers to leave in the three months to July.
Pulling out of Russia, a step Netflix took following the war in Ukraine, cost it 700,000 subscribers, the streaming company said.
Another 600,000 people stopped its service in the US and Canada after the price increase, Netflix said.
The firm’s revenue in the first three months of the year was up 9.8 percent compared with the same period last year of more than $7.8bn.
That marked a slowdown from earlier quarters while profits fell more than 6 percent to roughly $1.6bn.
Netflix placed some of the blame for the drop in subscribers on family members sharing the same account, something that the company has recently started to crack down on.
In March, Netflix announced that was looking to curb its loss in revenue by charging users an additional monthly fee to host over two people outside their household on their account.
The charge will be tested in Chile, Costa Rica, and Peru before it is implemented in the US and a number of other locations.
According to the new policy, users can host two other viewers outside of their own household on their account for a small additional fee, amounting to less than the price of two separate accounts.
The fee will likely top out around $3, which is substantially less than the $9.99 to $19.99 it could cost for users to open their own, independent subscriptions.
In explaining its dropping subscriber numbers, Netflix also pointed to the brewing conflict between giants such as Amazon, Disney, and Apple—dubbed the “streaming wars”—as another reason for a hit to its subscriber numbers.
While the streaming service remained dominant for years, other services have begun to improve their content and prices, creating tough competition for Netflix.