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Media

Netflix may introduce ads before end of the year: report

By
Alexandra Steigrad
Published May 10, 2022, 2:05 p.m. ET

Netflix may introduce a lower-priced ad-supported tier by the end of the year, a much quicker timeline than originally expected, according to a new report.

Netflix delivered the news to employees in a memo, which said they were aiming to introduce ads in the final three months of the year, The New York Times reported Monday. The company added that it will likely begin cracking down on password sharing among subscribers around the same time.

The news is a major reversal for the streaming giant, which, for years, had adamantly denied considering advertising. The change of heart came after Netflix reported its first loss in subscribers since 2011.

That caused co-CEOs Reed Hastings and Ted Sarandos to reconsider ads to drum up more revenue, as well as limiting password sharing in order to capitalize on its large customer base.

Changes in Netflix’s business plan come as the streaming giant faces significant challenges. The streamer, which has 221.6 million subscibers, lost 200,000 subscribers in the first quarter and expects to lose 2 million next quarter.

Signage outside the Netflix Inc. office building on Sunset Boulevard in Los Angeles, California, U.S. on Monday, April 19, 2021
Netflix is planning on adding a lower-priced tier with commercials before the end of the year, a memo said. Bloomberg via Getty Images

Since the subscriber announcement in April, Netflix’s share price has gone into freefall, erasing roughly $70 billion in the company’s market capitalization. The company cited the pulling out of Russia, as well as the waning of the pandemic, which supercharged Netflix’s subscriber base.

Netflix is also losing customers to competitors such as Disney, Warner Bros. Discovery, Paramount Global, NBCUniversal, and Apple TV+.

Hastings told investors recently that it would look into the possibility of introducing an ad-supported platform like some of its rivals and that it would try to “figure it out over the next year or two.”

The recent note to staff signaled that the timeline has sped up.

Co-CEOS Reed Hastings and Ted Sarandos
Co-CEOS Reed Hastings and Ted Sarandos had previously shunned the idea of an ad-supported tier. Getty Images

“Yes, it’s fast and ambitious and it will require some trade-offs,” the note said.

Netflix did not comment.

Netflix is losing customers to competitors such as Disney, Warner Bros. Discovery, Paramount Global, NBCUniversal, and Apple TV+.

The Los Gatos, Calif.-based streaming giant currently offers a host of payment tiers, including its most popular plan, which costs $15.49 a month. The new ad-supported tier will cost less. Other streaming providers have similar plans and ad-suported offerings. HBO Max, for example, offers an ad-free service for $15 a month, and it charges $10 a month for the service with commercials.