Netflix accelerates advertising and password changes

Netflix flagged radical changes to its platform, but originally hinted it would be a while away. Now it’s happening much sooner than expected.

Netflix will accelerate radical changes to its service by introducing a cheaper advertising-supported tier and crackdown on password sharing by the end of the year.

When Netflix executives first flagged the moves, the timing for the ad-supported option was to be “within two years”.

Now it’s a matter of months, not years, and the password crackdown will happen at the same time.

The turbocharged timetable was revealed by The New York Times, citing an internal note that was leaked to the publication by two staffers whose identities were withheld.

According to the NYT, the note said, “Yes, it’s fast and ambitious and it will require some trade-offs.” It did not specify what those “trade-offs” may be.

For years Netflix has vowed it would never incorporate advertising on its platform, so the move is a drastic turnaround. The announcement follows a horror start to 2022 which has seen the streaming giant’s stock price hammered by 70 per cent, resulting in the loss of tens of billions of dollars in its market value.

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Popular Netflix series Ozark.

In April, Netflix revealed it suffered a net loss of 200,000 subscribers in the first three months of the year, well below its own forecasts and its first backslide in a decade. It also said it anticipated a further shedding of 2.4 million in the current quarter.

While Australia doesn’t currently have any paid streaming services with a lower-priced ad-supported tier, the practice is more established in the US where Paramount+, HBO Max, Peacock and Hulu all have the option. Disney also announced in March it will introduce a cheaper ad-supported tier on Disney+.

While Disney and Netflix haven’t unveiled prices, on average, ad-supported tiers on other US services is roughly half the price.

The Netflix note appeared to justify its about-turn by pointing to its rivals.

“Every major streaming company excluding Apple has, or has announced, an ad-supported service. For good reason, people want lower-priced options.”

Netflix’s embrace of advertising will open a separate revenue stream for the company while also attracting a new slate of customers who may have been reluctant to sign up due to cost. It could also potentially stymie churn and cancellations at a time when consumers are hit by rising cost of living and inflationary pressures.

Netflix cancelled Steve Carell series Space Force. Picture: Netflix

The company also reaffirmed its plans to recoup costs lost to password sharing, where customers give their passwords to friends and family outside of their household. The common practice is forbidden in the terms and conditions but 100 million out of its 222 million members does it.

While Netflix has previously said cracking down on it wasn’t a priority, it’s now keen to go after the moochers.

The service is trialling a feature in Costa Rica, Peru and Chile in which customers who share their passwords are charged another fee, between $3 and $4 for each extra household.

It’s been a tumultuous three weeks for Netflix since it reported its latest financials. In addition to the changes to advertising and password sharing, the company is also cutting costs.

It sacked its head of animation and several staff in the same department while cutting a raft of in-production projects including Meghan Markle’s forthcoming series Pearl as well as an adaptation of Jeff Smith’s Bone.

It also cancelled Steve Carell series Space Force, the Michael B. Jordan-produced superhero show Raising Dion and canned the sequel to Will Smith fantasy movie Bright.