For about a decade, it looked like Netflix would never stop growing. The company became synonymous with the idea of streaming itself: cozy nights in and binge-watching, setting a high standard for the rest of the industry. The company released a mountain of original content as its subscriber count continued to rise, pushing its market capitalization to a high of more than $300 billion in 2021.
But executives made some sweeping changes when the company started losing subscribers in 2022, and nothing has been the same since. Netflix had to make changes, and quickly, if it wanted to keep investors happy. That year, Netflix did something that co-founder Reed Hastings continually rejected: It launched a cheaper, ad-supported tier with the goal of attracting a new set of subscribers, while cashing in on the money earned by advertisers.
Although a slow start, Netflix's ad-supported tier gained 5 million subscribers in just six months. The plan is now one of Netflix's most popular tiers, as its latest earnings report revealed that 40 percent of new subscribers choose the cheapest option. Netflix has only continued to develop the plan, adding 1080p video and the ability to watch two streams simultaneously. But the company's plan to turn around its dwindling subscriber base didn't end there.
“Netflix is well aware of the fact that it is one of the few must-have streaming brands for many households.”
The streamer went a step further by cracking down on password sharing, something Netflix is now notorious for adopting in a tweet from 2017. The move did little to improve morale in a subscriber base hurt by frequent price increases, and yet it still appears to be working in Netflix's favor. Shortly after the crackdown began, Netflix said paid sharing resulted in more subscriptions than cancellations and also generated higher revenue.
Netflix has only continued to push the envelope with another price increase last fall (its third in three years). It also stopped allowing subscribers to sign up for its cheapest plan, $11.99 a month, without ads. It is now taking steps to completely ditch the plan for those who have already signed up as part of its attempt to push users towards its $6.99 per month ad-supported plan or its standard $15.49 per month tier.
While it may seem counterintuitive to point users to the least expensive tier, ads are a big part of Netflix's business now.
Last year, the company said so. We already saw higher revenue per customer. on its ad-supported plan, as opposed to its $15.49 ad-free plan, which means its basic $11.99 per month plan probably isn't doing much for Netflix's bottom line. During an earnings call this week, co-CEO Greg Peters said the company's top priority in its advertising business is “scale.” For Netflix, that means “making the ad plan more attractive” and “changing our plans and pricing structure and other places where we think it's appropriate.”
Then there's Netflix's $5 billion deal for WWE Monday night raw. Sources tell CNBC that Netflix will not show ads during Raw for subscribers of your level without advertising. If true, users of Netflix's $6.99 plan would still get commercials during the three-hour show, creating another revenue driver for the streamer.
“WWE content is accustomed to a younger demographic, allowing Netflix to perhaps reach portions of an older audience that it won't be able to reach with just a lower price point,” says Paul Erickson, founder and director of Erickson Strategy & Insights. The edge. “When compared to their other recent move to eliminate the lower-priced ad-free tier, I would say they are looking, like the rest of the industry… to improve their bottom line.”
AND Monday night raw It's not the traditional type of sports broadcasting: It's “sports entertainment,” as Netflix co-CEO Ted Sarandos put it on the company's latest earnings conference call. According to Erickson, that's a plus for Netflix because it increases engagement, meaning “people who watch it tend to keep watching it.” Erickson also points out that unlike traditional sports, WWE is not seasonal, so Netflix can continue streaming it for the 10 years it signed up for, and users interested in watching it will remain subscribed without any off-season interruptions that may cause cancellations.
All these changes add up to a very different Netflix than the one we saw a few years ago. Netflix isn't ashamed of what it's doing either, in part because can not be. After years of competing for subscribers, streaming services now need to prove that they are truly profitable. That has led streamers, not just Netflix, to raise prices and bundle their services into a single app, like Max and Disney Plus with Hulu. “Netflix is very conscious of the fact that it is one of the few must-have streaming brands for many households,” Erickson says. “They need to maintain that title as a service to subscribe to even in the face of aggressive competition.”
Netflix is no longer synonymous with streaming in part because it is no longer the only game available. But even the Netflix that exists today is a far cry from what it once was, and will surely continue to move further and further away from that original vision. That streamer ideal was fueled by the ever-rising stock price, which has since become a reality again. As for what that future means for streaming (whether it will soon become a mix of live and on-demand content with ads), one thing is clear: Netflix's rapid evolution is allowing the company to stay ahead in an industry more competitive than ever, and from here there is no turning back.
