Netflix has confirmed that it would introduce commercials to its service as Netflix’s co-CEO Ted Sarandos confirmed this on Thursday. Netflix lost 200,000 subscribers in the first three months of 2022 and forecasted greater losses to come in an April shareholder letter.
The company’s stock price has fallen more than 70% this year (compared with the S&P 500’s 21% decline), wiping out roughly $70 billion in market capitalization and prompting shareholders to file a lawsuit alleging that Netflix misled investors about declining subscriber growth.
Netflix co-CEO Reed Hastings hinted at the advertising strategy during a first-quarter earnings call in April, saying that ads could be coming in the next year or two. “Those who have followed Netflix know that I’ve 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,” he said. “And allowing consumers who like to have a lower price, and are advertising tolerant, to get what they want makes a lot of sense.”
With the loss of subscribers, Netflix hopes to introduce ads to its platform to help generate more revenue. Sarandos said at the Cannes Lions international advertising festival that the streaming company is in talks with several potential partners to help ease its entry into the ad world. Comcast, NBCUniversal, and Google are reportedly among the partners.
In addition to this, Netflix also announced on Thursday that it laid off 300 employees in the second round of job cuts after losing subscribers for the first time in more than a decade. The cuts amounted to about 4% of the streaming giant’s workforce and mostly affected US employees. They came after the company cut 150 jobs last month.
“While we continue to invest significantly in the business, we made these adjustments so that our costs are growing in line with our slower revenue growth,” Netflix said in a statement.
Netflix is not alone when it comes to showing ads to its subscribers, competitors like Hulu and HBO Max already offer ad-based plans that are cheaper than their commercial-free services, with Disney+ announcing in March that it would be rolling out an ad-supported subscription tier in late 2022.
With Netflix’s current monthly subscription model, subscribers in the United States can use their account on one, two, or four screens at the same time, with prices corresponding to the number of screens available—ranging from $9.99 to $19.99. The new ad-supported tier will provide a lower-cost option for subscribers willing to watch commercials in exchange for paying less.