Netflix Might Offer An Ad-Based Tier In The Future

Amid huge losses in subscribers and results allegedly negatively impacted by password-sharing, Netflix is now coming around to the idea of offering an ad-based model to grow its subscriber base and make more money.

For years, Netflix had said it had no interest in a setup like this, but during the company's latest earnings briefing, founder Reed Hastings said it might finally be time to do so. Nothing is confirmed yet, however, but Netflix would be following basically every other major streaming company in offering an ad-based option alongside a subscription-based offering.

Hastings said, "Those who have followed Netflix know that I've been against the complexity of advertising and a big fan of the simplicity of subscription." At the same time, Hastings said he is a "bigger fan of consumer choice," and that's where an ad-based model could come in.

"Allowing consumers who would like to have a lower price and are advertising-tolerant get what they want makes a lot of sense," Hastings said. "So that's something we're looking at now. We're trying to figure out over the next year or two. But think of us as quite open to offering even lower prices with advertising as a consumer choice."

"I think it's pretty clear that it's working for Hulu. Disney is doing it. HBO did it. I don't think we have a lot of doubt that it works; that all those companies have figured it out," he added. "I'm sure we'll just get in and figure it out as opposed to test it and maybe do it or not do it. So I think we'll really get in. But again, it would be a plan layer, like it is at Hulu. So if you still want the ad-free option, you'll be able to have that as a consumer. And if you would rather pay a lower price and you're ad-tolerant, that's also--we're going to cater to you also."

Netflix's Gregory Peters went on to say that an ad-based Netflix tier is an "exciting opportunity that we want to explore more," but don't expect a new ad tier for Netflix to roll out tomorrow.

Also during the call, Hastings said a potential ad-based tier would not be a "short-term" fix for Netflix's financial issues right now. In fact, offering it right away could make Netflix's numbers look even worse, Hastings said, because paying subscribers might opt for the lower price instead of sticking with their existing premium membership.

"Once you start offering a lower-priced plan with ads as an option, some consumers take it. And we've got a big installed base that probably are quite happy where they are. So think of it as it would phase in over a couple of years in terms of being material volume," he said.

Netflix recently raised prices, and following that, it lost 200,000 subscribers in the past three months and projects it will lose 2 million more in the months ahead. Netflix also confirmed that it will continue to crack down on password-sharing, because there are more than 100 million shared accounts worldwide, and Netflix wants a piece of that.

Netflix raising subscription prices and cracking down on password-sharing comes just after the company announced it made $29.7 billion in revenue and a profit of $5.1 billion in 2021, while Netflix's co-CEOs Ted Sarandos and Reed Hastings made more than $70 million in pay that year.

Beyond TV and film, Netflix is now buying video game studios to create games based on Netflix properties. Just this week, the company announced it had acquired Boss Fight as part of its effort to build a "world classic" game development pipeline.

For more on Netflix, check out all the TV shows and movies coming to the platform in April 2022.