Netflix considers lower-price plan with ads amid drop in subscribers

FILE IMAGE - A photo of a person about to watch Netflix on a screen inside an apartment on Jan. 13, 2021, in Dublin, Ireland. (Photo by Artur Widak/NurPhoto via Getty Images)

Netflix is "quite open" to offering a lower-price plan supported by advertising as the company reckons with a drop in its subscribers and other rival platforms chipping away at its vast audience.

Netflix's customer base fell by 200,000 subscribers during the January-March quarter, the first decline the streaming service has seen since it became available throughout most of the world six years ago. The drop stemmed in part from Netflix's decision to withdraw from Russia to protest the war against Ukraine, resulting in a loss of 700,000 subscribers. 

The company projected a loss of another 2 million subscribers in the current April-June quarter.

"Those who have followed Netflix know that I have been against the complexity of advertising and a big fan of the simplicity of subscription," co-CEO Reed Hastings said in an earnings interview on Tuesday.

"But as much as I am a fan of that, I am a bigger fan of consumer choice, and allowing consumers who would like to have a lower price and are advertising-tolerant to get what they want makes a lot of sense," Hastings continued. "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."

Netflix offered no additional information about how a cheaper ad-supported service tier would work or how much it would cost. Another rival, Hulu, has long offered an ad-supported tier.

In January, Netflix raised prices on all plans in the U.S. A Basic plan costs $9.99 a month, the Standard plan costs $15.49 a month, and the Premium plan costs $19.99 a month.

The looming changes, which also include minimizing password sharing, are designed to help Netflix regain momentum lost over the past year. Pandemic-driven lockdowns that drove binge-watching have lifted, while deep-pocketed companies such as Apple and Walt Disney have created notable competition in the streaming world. 

The Los Gatos, California, company estimated that about 100 million households worldwide are watching its service for free by using the account of a friend or another family member, including 30 million in the U.S. and Canada.

"Those are over 100 million households already are choosing to view Netflix," Hastings said. "We’ve just got to get paid at some degree for them."

To get more people to pay for their own accounts, Netflix indicated it will expand a trial program it has been running in three Latin American countries — Chile, Costa Rica and Peru. In these locations, subscribers can extend service to another household for a discounted price. In Costa Rica, for instance, Netflix plan prices range from $9 to $15 a month, but subscribers can openly share their service with another household for $3.

RELATED: Netflix brings back comedy series 'Servant of the People' starring Ukrainian President Zelenskyy

Netflix believes these changes will help it build upon its current 221.6 million worldwide subscribers. But the company was previously stung by a customer backlash in 2011 when it unveiled plans to begin charging for its then-nascent streaming service, which had been bundled for free with its traditional DVD-by-mail service before its international expansion. 

In the months after that change, Netflix lost 800,000 subscribers, prompting an apology from Hastings for botching the execution of the spin-off.

Tuesday’s announcement was in stark contrast to two years ago for Netflix, when millions of consumers forced to stay at home were desperately seeking diversions. Netflix added 36 million subscribers in 2020, the first year of the pandemic, which was by far the largest annual growth since its video streaming service’s debut in 2007.

But Hastings now believes those outsized gains may have blinded management. "COVID created a lot of noise on how to read the situation," he said in the earnings interview.

Netflix began heading in a new direction last year when its service added video games at no additional charge in an attempt to give people another reason to subscribe.

Escalating inflation over the past year has also squeezed household budgets, leading more consumers to rein in their spending on discretionary items. Despite that pressure, Netflix raised the prices in the U.S., where it has its greatest household penetration — and where it's had the most trouble finding more subscribers.

RELATED: Netflix stock plunges as subscriber growth worries deepen

This story was reported from Cincinnati. The Associated Press contributed.