Netflix is different now: In a notable shift from its previous trajectory, Netflix has undergone a series of strategic moves to adapt to the evolving dynamics of the streaming industry. Traditionally synonymous with continuous growth and setting industry standards, the company faced a challenging phase in 2022 when a decline in subscribers prompted swift executive actions.
In a departure from co-founder Reed Hastings’ longstanding stance, Netflix introduced a more affordable, ad-supported tier aimed at attracting a new subscriber base and capitalizing on advertising revenue. Despite a gradual start, the ad-supported tier swiftly amassed 5 million subscribers within six months and has become one of Netflix’s most popular options, with 40 percent of new subscribers opting for the cost-effective alternative.
Building on this success, Netflix enhanced the ad-supported plan by incorporating features such as 1080p video quality and the ability to stream on two devices simultaneously. However, the company’s efforts to reverse the decline in subscribers did not stop there.
Netflix took a bold step by cracking down on password sharing, a practice it had previously embraced in a 2017 tweet. Despite potential backlash from a subscriber base already dealing with frequent price hikes, the move appeared to work in Netflix’s favor. Paid sharing reportedly resulted in more sign-ups than cancellations and contributed to increased revenue.
Undeterred by occasional pushback, Netflix continued to implement a third price hike in as many years, discontinuing sign-ups for its cheapest, $11.99 per month ad-free plan. The company is now phasing out this plan entirely for existing subscribers, encouraging them to opt for either the $6.99 per month ad-supported plan or the $15.49 per month standard tier.
Contrary to conventional expectations, the emphasis on directing users towards the more affordable ad-supported tier aligns with Netflix’s evolving business model, where ads play a significant role in generating revenue. Recent financial data indicated that the ad-supported plan already yields a higher revenue per customer compared to the $15.49 ad-free plan.
During an earnings call, co-CEO Greg Peters emphasized Netflix’s commitment to “scale” in its advertising business, focusing on making the ads plan more attractive and adjusting pricing structures to enhance appeal.
In a strategic move beyond pricing adjustments, Netflix secured a $5 billion deal for WWE Monday Night Raw. While details suggest that Netflix subscribers on the ad-free tier won’t experience ads during Raw, those on the $6.99 plan would still encounter commercials, presenting an additional revenue source for the streaming giant. Analysts suggest that this move, coupled with Netflix’s elimination of the lowest-priced ad-free tier, indicates a concerted effort to enhance profitability.
The unique nature of WWE’s “sports entertainment” aligns with Netflix’s goal of increasing engagement and retaining subscribers. Unlike traditional sports broadcasts, WWE’s non-seasonal nature allows Netflix to consistently stream it throughout the duration of its 10-year agreement, minimizing the risk of subscriber losses during off-season breaks.
In the face of heightened competition and the imperative to demonstrate profitability, Netflix acknowledges its role as a must-have streaming brand for many households. Industry experts note the company’s awareness of the evolving landscape, prompting proactive measures such as price hikes and service consolidations, as seen with Max and Disney Plus with Hulu.
While Netflix is no longer the sole player in the streaming arena, its transformative strategies position it as a dynamic and adaptive contender. The company’s evolution, driven by market demands and competition, affirms its commitment to staying ahead in an increasingly competitive industry. As the streaming landscape evolves into a blend of live and on-demand content with ads, Netflix’s rapid adaptation signals an irreversible trajectory towards a new era in streaming.