Netflix is in so much trouble that it decided to change its business model. Instead of charging people for subscriptions that allow them to watch TV shows and movies without commercials, Netflix will return to a very old model: watching TV shows and movies with advertising. Viewers still have to pay a subscription fee, but its price is cut slightly if they accept the ads. New data show consumers rejected the novel approach.
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Research company Antenna looked at TV subscription models. Its “The Launch of Netflix Basic With Ads” report noted, “Antenna finds that 9% of Netflix Sign-ups in the U.S. in November were to the ‘Basic with Ads’ plan, making it the least popular of their plan options.” Since Netflix adds a few million subscriptions per quarter, the total for the ad-supported service must be in the low hundreds of thousands.
The percentage of people who accept ad-supported streaming services was much higher at Netflix’s competition. HBO Max had a 21% figure. At Paramount it was 55%.
In the most recent quarter, Netflix only added 2.4 million subscribers, which is very low based on past numbers. It also forecast trouble ahead, particularly the results of its fourth quarter.
Management made two telling comments. The first is that it believes the ad-supported business will do well. The other is that it has a head start over its competition. Management further argued that all new streaming services lose money and that the total operating losses of these services will be over $10 billion this year.
Management did not say that its competition is prepared to lose billions of dollars to catch it. Since the financial success of streaming has started to fall apart, this may not be a good idea, but it is not an idea that will go away.
Netflix hoped that ad-supported streaming would allow it to return to rapid growth and keep competition at bay. Early results show that it is not working.
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