Netflix’s share price plummets after advertising plan unveiled

NOTetflix suffered a crash in share price after an unprecedented drop in subscribers prompted it to warn it was considering introducing advertising.

The company said work on the service is still in its early stages, but it should follow in the footsteps of other streaming platforms such as Hulu that already offer such payment plans.

At the same time, he is considering a crackdown on around 100million households who break Netflix rules by sharing their passwords, a practice that would cost the company up to $14billion (£10.7billion). pounds) per year.

The company is taking drastic action after losing 200,000 subscribers in the previous quarter and has warned that another 2 million could quit over the next three months.

It sparked a tumble in the company’s share price, which plunged more than a third on Wednesday to its lowest level in four years, wiping around $50bn (£38bn) of value of the company.

The move towards providing a cheaper, ad-supported service comes despite previous concerns expressed by Netflix about the idea.

In 2020, Reed Hastings, the company’s co-founder and chief executive, said he wanted Netflix to be a “safe respite” without “any controversy around exploiting users with advertising.”

But Mr Hastings has now claimed that the introduction of advertising will improve the choice available to consumers.

He said: “Those who have followed Netflix will know that I have been against the complexity of advertising and a big fan of the simplicity of subscription.

“But, as much as I’m a fan of that, I’m a bigger fan of consumer choice.

“Allowing consumers who want a lower price and who are ad-tolerant to get what they want makes perfect sense.

“I think it’s pretty clear that it works for Hulu. Disney does it. HBO has it. I don’t think we have much doubt that it works.

According to Netflix’s most recent annual accounts, the company receives an average of $11.67 in monthly fees from each of its 220 million subscribers.

That means it could lose up to $14 billion a year on the 100 million who don’t pay the full fee to watch the service.

The company now plans to expand a trial that offers select Latin American households the ability to share their subscriptions for an additional $3 per month.

If it captured everyone currently piggybacking on the others, it could net $3 billion in additional revenue.

Analysts have criticized the streaming service’s plans to introduce advertising, accusing it of throwing away all of its old rules without notice.

Michael Nathanson, an analyst at Moffett Nathanson, said: “It’s just shocking. Everything they’ve tried to convince me of over the past five years has been dropped in a quarter. It’s such a flip-flop.

“They were never able to explain why or how the growth was slowing down. Now they have decided that growth is slowing down. How has that changed in two quarters? »

Hulu already offers an ad-supported service in the UK, which costs £4.55 per month. The ad-free service costs £9.10 per month.

Netflix’s cheapest “basic” subscription costs £6.99 and can only be used on one device at a time.

Mr Hastings also admitted that the company’s rapid growth during the pandemic, when millions of confined families sought indoor entertainment, had “created noise” that obscured things happening for its subscriber base.

This masked the growing impact of competing services such as Disney+ and the growing number of customers sharing their passwords with family members and friends.

He said, “When we were growing fast, it [account sharing] was not a high priority to work on. And now we are working very hard on it.”

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