After remaining free from ads and commercials for users, Netflix Co-CEO Reed Hastings has said the video streaming platform is now open to offering cheaper and ad-supported tiers in order to boost its subscriber base. However, add-free plans will continue to be there on the platform, he added.
The company reported a loss of two lakh subscribers for the first quarter. Listing various factors affecting its growth in the first quarter of 2022, it said account sharingcompetition and macroeconomic factors such as sluggish economic growth, increasing inflation, geopolitical events such as Russia’s invasion of Ukraine, and some continued disruption from COVID-19 are inter-related factors at work.
On the commercials, Hastings during an earnings call on Tuesday said: “Those who have followed Netflix know that I have been against the complexity of advertising and a big fan of the simplicity of subscription… But, as much as I am a fan of that , I am a bigger fan of consumer choice, and allowing consumers who would like to have a lower price and are advertising-tolerant to get what they want makes a lot of sense,” he added.
A lower-tier option that includes advertisements could keep some price-conscious consumers with the service and provide Netflix with a different avenue to garner funds. “It’s pretty clear that it’s working for Hulu. Disney is doing it. HBO did it,” Hastings said. “I don’t think we have a lot of doubt that it works.”
The company, which has about 222 million paying customers, has been asked repeatedly over the years if it would ever be considering bringing advertisements to its platform. It has always declined.
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.
Shareholders’ Letter
In a letter to shareholders, Netflix said, “Our goal is to sustain double-digit revenue growth, increase operating income even faster (as we expand margins) 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 (ie, 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 company also said it plans to re-accelerate its viewing and revenue growth by continuing to improve all aspects of Netflix, in particular, the quality of its programming and recommendations, which is what its members value most.
“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.
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