Netflix adverts: why has it lost subscribers, will it stop password and account sharing - changes explained

Netflix hints at some major changes as it announces its first loss of subscribers in a decade

The first major drop in subscriber numbers has rattled Netflix and its shareholders, prompting the streaming service to consider making changes that it once considered taboo.

An end to account sharing and the introduction of ad-supported content could be on the cards, as the company attempts to make up for the loss of 200,000 subscribers in the first quarter of 2022.

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With a projected a loss of another two million subscribers in the current quarter, would such divisive changes really be implemented by the company?

Here is everything you need to know.

Netflix is considering creating a low-cost subscription supported by advertising (Photo: Adobe)

Why have the numbers dropped?

Since the Netflix streaming service that we know today became widely available around the world six years ago, it has gone from strength to strength.

When the first Covid-19 lockdowns were introduced in early 2020, it saw an influx of new customers, stuck at home and with more free time to consume its content.

But since many lockdowns have now lifted, the demand for such content has waned.

Genuine streaming rivals have also sprung up since then, with the likes of Apple TV+ and Disney+ - both overseen by companies with massive budgets - eating into Netflix’s once dominant market share.

The drop has also stemmed in part from Netflix’s decision to withdraw from Russia in protest at the war against Ukraine, resulting in an instant loss of 700,000 subscribers.

Then there’s the ongoing cost of living crisis, which has seen families opt to give up on streaming services to focus on more essential items as the purse strings tighten.

Netflix projected a loss of another two million subscribers in the current April - June 2022 quarter.

Will Netflix stop account sharing?

Account sharing has long been a normal practice among Netflix subscribers.

Multiple profiles are allowed on the same account - say, for instance, if it’s being shared amongst a family - but some users take things a step further, willingly sharing their passwords with friends and effectively granting them free access to the streaming service.

The California-based 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 US and Canada.

A trial programme it has been running in Chile, Costa Rica and Peru, where subscribers can extend service to another household for a discounted price, and Netflix has indicated that this will be expanded to cover more territories.

Netflix boss Reed Hastings has said: "When we were growing fast, it wasn't a high priority to work on [acount sharing]. And now we're working super hard on it."

Will Netflix introduce ads?

The firm offered no additional information about how a cheaper ad-supported tier would work or how much it would cost.

Other streaming services allow ad-supported content, offering much cheaper subscription alternatives in exchange for the slight annoyance of having to sit through commercials.

Others are able to provide content to users entirely for free, being funded entirely by advertising revenue.

On this question, 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. But, as much as I'm a fan of that, I'm a bigger fan of consumer choice."

He added that "it's pretty clear" that ad-supported services are working for rivals Disney and HBO.

How likely are the changes?

Netflix’s first loss of subscribers has seen its shares plunge by more than 25% in extended trading - if that stock drop continues, Netflix shares could lose more than half of their value so far this year — wiping out about 150 billion dollars (£115 billion) in shareholder wealth in less than four months.

So the company will be keen to recoup its losses, though it must be careful how it does that.

In 2011, the streamer was stung by a customer backlash when it unveiled plans to begin charging for its then-nascent streaming service, which had previously been bundled for free with its traditional DVD-by-mail service before its international expansion.

The changes outlined above would likely be equally as unwelcome by current subscribers. But as circumstances change, they may be necessary evils for Netflix to continue as it has.