Netflix to reduce password sharing, considers advertising

Due to an unexpectedly sharp drop in subscribers, Netflix is considering changes that it has long resisted: limiting password sharing and launching a low-cost subscription supported by advertising.

Looming changes announced late Tuesday are intended to help Netflix reclaim the momentum it has lost over the last year. Pandemic-driven lockdowns that fueled binge-watching have been lifted, while deep-pocketed competitors such as Apple and Walt Disney have begun to chip away at its vast audience with their own streaming services.

Netflix’s subscriber base shrank by 200,000 during the January-March quarter, the first drop in the streaming service’s history since it became available in most of the world except China six years ago. The drop was caused in part by Netflix’s decision to withdraw from Russia in protest of the war against Ukraine, which resulted in a 700,000 subscriber loss. In the current April-June quarter, Netflix expects to lose another 2 million subscribers.

Netflix investors have been alarmed by the erosion, which follows a year of progressively slower growth. After Netflix revealed its disappointing performance, shares fell by more than 25% in extended trading. If the stock declines further into Wednesday’s regular trading session, Netflix shares will have lost more than half of their value this year, wiping out approximately $150 billion in shareholder wealth in less than four months.

According to the Los Gatos, California-based company, approximately 100 million households worldwide are watching its service for free by using the account of a friend or another family member, with 30 million in the United States and Canada.

Netflix has announced that it will expand a trial program that has been running in three Latin American countries — Chile, Costa Rica, and Peru — to encourage more people to pay for their own accounts. Subscribers can extend service to another household at a reduced rate in these locations. Netflix plan prices in Costa Rica, for example, range from $9 to $15 per month, but subscribers can openly share their service with another household for $3.

Netflix did not provide any additional information about how a lower-cost ad-supported service tier would operate or how much it would cost. Hulu, another competitor, has long had an ad-supported tier.

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