Netflix CEO considers offering cheaper and ad-supported subscription plans, here is why

After losing two lakh subscribers for the first quarter, Netflix Co-CEO Reed Hastings is considering to offer cheaper and ad-supported subscription plans. The loss s is expected to grow to a loss of 2 million customers in the second quarter.

Hastings who has long been opposed to adding commercials or other promotions to the platform has offered this idea to increase its subscriber base. Netflix Co-CEO accepted the fact that it makes a lot of sense” to offer customers a cheaper option. However, add-free plans will continue to be there on the platform, he added.

Account sharing, competition and macroeconomic factors such as sluggish economic growth, increasing inflation, and geopolitical events have collectively been held responsible for the loss of subscribers in the first quarter of 2022.

According to Hastings who is a bigger fan of consumer choice, service providers must understand the need of the consumers. If they would like to have a lower price and are advertising-tolerant to get what they want makes a lot of sense.

Referring to rivals such as Hulu, Disney, HBO, Hastings emphasises that to serve the price conscious consumers it is pertinent to offer a lower-tier option that includes advertisements and help us increase the consumer base of video streaming platform Netflix and help increase revenue.

With its current 222 million paying customers, Netflix has never been in favour of bringing advertisements to its platform

Hastings has long been opposed to adding commercials or other promotions to the platform but, during the company’s earnings call, said it “makes a lot of sense” to offer customers a cheaper option.

In a letter to shareholders, Netflix said that it aims to sustain double-digit revenue growth, increase operating income even faster and generate growing positive free cash flow (FCF).

“During this period of slower revenue growth, assuming no material swings in foreign exchange, we aim to protect our profitability and manage to a minimum operating margin roughly in line with current levels (i.e., this year’s 19-20 per cent guidance). Once we’ve re-accelerated revenue growth, we’re committed to steadily growing our operating margin,” the letter reads.

Netflix is also planning to re-accelerate its viewing and revenue growth by continuing to improve all aspects of the video streaming platform, particularly programming and recommendations.

“Over the longer term, much of our growth will come from outside the US. Traditionally, US entertainment companies have viewed “international” as an export market for US content. But we saw long ago that great stories can be made anywhere and loved everywhere – dramatically broadening the pool of creators with whom we can work, increasing the variety of our programming and better serving local tastes,” the letter said.

Netflix is yet to finalise their plan for its ad-supported model. Details on pricing of such subscription plan is not yet out.

As of now, Netflix hasn’t come up with a complete plan for its ad-supported model. Therefore, the pricing of such a subscription isn’t out yet. Having said that, we may have to wait for a few quarters to get a complete picture of how Netflix mitigates the negative growth of its userbase.

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