Netflix's recent price hike in January saw a loss of 600,000 customers across the US and Canada, and the company's struggle to boost subscriptions is leading it to a "more effective monetization of multi-household sharing."
The streaming giant reached 222 million "paying households" at the end of 2021, but claims that an additional 100 million households are using the service via password sharing. With this in mind, Netflix is now "working on how to monetize sharing," as chairman and co-CEO Redd Hasting states.
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In the 2022's first-quarter earnings letter to shareholders, Netflix states: "First, it’s increasingly clear that the pace of growth into our underlying addressable market (broadband homes) is partly dependent on factors we don’t directly control, like the uptake of connected TVs (since the majority of our viewing is on TVs), the adoption of on-demand entertainment, and data costs. We believe these factors will keep improving over time, so that all broadband households will be potential Netflix customers."
The shareholder letter continues: "Second, in addition to our 222m paying households, we estimate that Netflix is being shared with over 100m additional households, including over 30m in the UCAN region. Account sharing as a percentage of our paying membership hasn’t changed much over the years, but, coupled with the first factor, means it’s harder to grow membership in many markets - an issue that was obscured by our COVID growth."
Netflix is already testing a new method of paid account sharing (opens in new tab) in Chile, Costa Rica, and Peru. This gives users the ability to share the accounts with up to two users outside their household, albeit at a price that's cheaper than a whole new subscription. It's uncertain when this payment scheme will launch to more regions around the globe, but COO Greg Peters believes the company will go through a year before deploying.
After losing 700,000 subscribers after halting services in Russia and announcing the streaming service is down 200,000 subscribers, for the first time in over a decade, Netflix isn't looking too hot for investors. However, CFO Spence Newman states that while there is a further 2 million subscriber drop expected in the next quarter, subscriptions will start rising towards the second half of 2022.
Interestingly, in light of the hit, Hastings now claims that Netflix is "open to offering even lower prices with advertising." The co-CEO has been against this type of advertising subscription, but if consumers are looking for a lower subscription price and are "advertising tolerant," then the option is worth thinking about. The ad-tier subscription is still in its planning phase, as the streaming giant is "trying to figure out" the best approach in the next year or two.
This isn't the first we've heard about a streaming service looking to introduce advertising as part of a subscription option, as competitor Disney Plus announced it will be adding an ad-supported subscription tier in late 2022 in the US and 2023 internationally (via The Verge). Now, Netflix is looking to follow suit.
With hit shows such as Bridgerton gaining 627 million hours in views in season 2 alone and the documentaries such as The Tinder Swindler seeing 166 million hours, Netflix continues to be the largest subscription streaming service on the market. How subscribers use the service, however, is looking to change in the near future.