When one brand becomes synonymous with an entire product or service, you know they’re doing something right. And when Netflix introduced instant streaming of TV and movies back in 2007, they changed the media game forever.
But with the rising popularity of competitors like Hulu, Disney+, and HBO Max – and reporting a decrease in subscribers for the first time in ten years – Netflix has really had to reconsider their business model and figure out how to keep it sustainable.
Two proposed remedies that grabbed subscribers’ attention are adding an ad-supported tier and cracking down on password sharing. But how will their customer base react to these changes? And are they enough to keep Netflix from becoming the next Blockbuster?
Putting commercials back in TV
One of the biggest differentiators between streaming and traditional cable is the usage of ads. Television has always been developed with strategically-placed commercial breaks as a way for networks to make revenue. But with a subscription fee going directly to a streaming service, the need for ad-driven revenue disappeared – for a short time, at least.
When Hulu was originally introduced to the streaming market, they built their entire brand on a platform that always included ads. In fact, an ad-free tier wasn’t introduced until 2015 – well after the ad-free model had proven to be effective. Peacock, Discovery+, and HBO Max have all relied on less expensive ad-supported tiers to grow their subscriber base as well.
Netflix CEO Reed Hastings has been a longtime critic of including ads in streaming, saying he’s a fan of the simple subscription model instead. But during a recent investor meeting, he pivoted his viewpoint, saying he’s “a bigger fan of consumer choice and allowing consumers who would like to have a lower price and are advertising-tolerant get what they want.”
It’s not yet clear what the new subscription tiers will look like – or whether the prices will even be able to compete with competitors’ – but consumers have made it very clear that they are willing to tolerate ads if it means more money in their pockets. And with Netflix continually raising prices, cost just may be the reason so many households are ending their subscriptions.
So the real question is, what will this new ad-inclusive tier look like? Will it be significantly cheaper than what Netflix is currently charging for a basic subscription? Or will the cost difference not be worth the inconvenience of advertisements mid-binge-watch? The tentative launch date for this new level is Q4 2022, so only time (and subscriber count) will tell.
One account, several households
The idea of “cracking down” on password sharing has sounded like an empty threat from streaming services for several years now – but it may be time for us to start taking these comments seriously. Because despite previous statements from the company saying that the missed revenue associated with password sharing was worth having extra eyes on their content, Netflix now has a plan in place to start directly earning profit from those viewers as well.
Netflix’s strategy to remedy this long-standing tradition won’t immediately freeze offenders’ accounts, but will result, rather, in an additional fee for accounts being used at more than one address – currently being tested at around $2-$3.
It’s estimated that more than 100 million households are using a shared Netflix password, so the customer base affected is quite large. But how users react to this new policy can differ from person to person.
Account holders may decide to just pay the fee and continue business as usual. Maybe they’ll send a Venmo request to whomever is using the account so they don’t have to front the cost. Either way, Netflix is now earning some extra revenue from that shared password that they weren’t previously – but at the expense of some minor annoyance from those users.
Conversely, account holders could decide to cease password sharing altogether to avoid the fee. That solves Netflix’s problem, but it isn’t all positive for them either. Maybe that additional household begins paying for their own account… or maybe they don’t. And losing that additional household as viewers means less people are watching and talking about their content. And there can’t be another Tiger King or Squid Game phenomenon with such a significant decrease in viewership.
No matter what the turnout is, this policy seems like just another price increase from a company that is simultaneously piloting ads to lower costs for consumers. And with so many alternatives to Netflix in the market, it may just be the last straw for subscribers.
The future of Netflix
Although Netflix is still considered to be an industry leader, its stranglehold on the market may soon be coming to an end.
As more and more companies decide to enter the streaming game, competition will continue to increase. And with networks now creating their own platforms to stream the content they already own, the days of licensing shows and movies to third-party services may be a thing of the past as well. Companies know that original content is becoming their only differentiator, and how they market that content will determine the rate at which they gain and retain subscribers.
The way we make our streaming decisions has become a mirror image of how households used to decide which cable packages to purchase. The market has become oversaturated, and the reintroduction of ads and increase in cost makes it even more reminiscent of the cable methodology we thought we had left behind.
But Netflix is no stranger to adjusting their business strategy to keep up with market changes. By starting their DVD rental service before people even realized VHS tapes would one day go out of fashion, they secured their title as an innovator. And although their breakthrough streaming model has been recycled by every media company in the world, there isn’t a doubt in my mind that Netflix can find yet another way to capture and change the market. The question is just whether or not consumers will stick around to find out what that will be.
is a marketer by day and writer by night, weekend, and sometimes lunch break. You can often find her with a good book or in the Taco Bell drive-thru.
