Off the back of slowed growth at the end of 2021, Netflix announced yesterday its first loss in subscribers for ten years. The platform lost 200,000 subscribers last quarter and anticipates losing 2 million global subscribers between April and May this year. 

Citing fierce competition in the streaming arena and a desire to cater for price-sensitive user bases, Netflix co-CEO Reed Hastings has revealed the company will look to include cheaper advertising supported plans “over the next year or two”. Would they go the whole hog and provide a free to view AVOD service?

Until recently Netflix had made its ad-free service a point of pride. Amid slow and now declining growth, however, Netflix co-CEO Reed Hastings has admitted, “allowing consumers who would like to have a lower price, and are advertising-tolerant, get what they want, makes a lot of sense.”

It appears the streaming giant has realized the importance of giving its users options for consuming their content, especially in emerging markets where the audience are more price sensitive than their home market. Moving away from one strict subscription model will help the company address a much larger pool of potential consumers. Increasingly, giving consumers choice in how they engage with content is becoming expected: “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,” Hastings said.

Hastings emphasized the move to supporting adverts on the Netflix platform wouldn’t supersede its existing model. Instead, AVOD will be added as an additional, cheaper subscription layer. Pricing has been a controversial issue for the platform in recent months - the company raised subscription prices amid backlash in March, and has struggled to grow its reach in markets such as India due to price sensitivity. Welcoming the option of advertising could open new, price-sensitive markets for the streaming service with massive potential for user growth.

We can see PlutoTV exponential growth globally and proof that ad-supported streaming is becoming quickly very popular. Source: Statista

With the addition of advertising to its platform, Netflix will now join the likes of Pluto TV and Tubi, who have both made successful plays for user growth in emerging markets. Pluto TV’s free, ad-supported service reached its $1 Billion Annual Revenue milestone a year ahead of schedule in 2021. This was in part due to huge growth in their Latin America user base, where ad-supported streaming is now the option of choice.

“As a video localization partner to producers and distributors of content that utilize streaming platforms from FAST channels on Prime Video to social platforms to AVOD, the trend we’re seeing across the global market is that users want optionality,” says Amir Jirbandey, Papercup’s Head of Growth. “Users want to watch content in their own language, dubbed as well as subtitled, through a price model that works for them, and on multiple devices. 

Netflix’s challenge has been how to break into territories that are a lot more price conscious, such as India, with their existing catalog of premium content that’s stuck in English. Services like PlutoTV are able to roll out less-premium localized content in local languages and are reaping huge rewards - look at PlutoTV Mexico. Now that’s where Netflix is heading.” 

With household budget cuts and a downturn in subscriptions in general, Netflix’s inclusion of new ways to watch is a savvy adaptation to increased competition. As the industry braces for a continued decline in users, companies will benefit by paying attention to emerging markets. Considering how users in these areas want to consume their entertainment will determine whether these strategies are successful.