Netflix has announced plans to introduce a cheaper subscription plan to users, which will be supported by advertising.
The streaming giant will look at rolling out the major model shift “over the next year or two”, Netflix co-CEO Reed Hastings has said.
The move comes after Netflix lost 200,000 subscribers during the first three months of the year, following a price hike and intense competition from rivals.
The streaming giant has warned shareholders another two million subscribers are likely to cancel their plan in the three months leading up to July.
Reed Hastings has now said that the use of ads on competitor sites, including Disney and HBO Max, has convinced bosses to embrace the change at the company, despite previously having ruled it out.
He told shareholders during a quarterly earnings call: “Those who have followed Netflix know that I have been against the complexity of advertising, and a big fan of the simplicity of subscription.
“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, get what they want makes a lot of sense.”
He added: “It is pretty clear that it is working for Hulu, Disney is doing it, HBO did it. We don’t have any doubt that it works.
“In terms of the profit potential, definitely the online ad market has advanced, and now you don’t have to incorporate all the information about people that you used to.
“We can stay out of that, and really be focused on our members, creating that great experience.”
The ad package would be a plan layer, similar to that used by Hulu, with Netflix COO Greg Peters labelling the move “an exciting opportunity for us”.
Boss Reed also hinted that Netflix will crack down on households sharing passwords as it seeks to sign up new members.
The streaming giant estimates more than 100 million households are breaking its rules by sharing passwords.
He previously described the practice as an element of Netflix “you have to learn to live with”, noting that a lot of it is “legitimate” between family members and also likely fuelled growth.
But Mr Hastings said it was deterring new subscribers in some countries and said tests in place in Latin America could be rolled out elsewhere, with accounts that break the rules charged extra.
He told shareholders: “When we were growing fast, it wasn't a high priority to work on [account sharing]. And now we're working super hard on it.
“Our revenue growth has slowed considerably. Our relatively high household penetration - when including the large number of households sharing accounts - combined with competition, is creating revenue growth headwinds.”
