Netflix is expanding its business model and introducing a subscription version with advertising. Netflix management started mentioning this change back in April, but the official announcement came last week. However, as far as the company's direct management is concerned, they have been against it since the company was founded.
They themselves have pushed the philosophy from the beginning that streaming should be an uninterrupted experience. For Netflix, however, the move is a bit of a lifeline.
When Covid came along, Netflix's subscriber numbers grew astronomically. However, with gradual loosening, people started spending less time at home and subscribers dwindled for a change. In the first quarter of this year, the company reported that it had lost and is losing subscribers. But expectations were worse, according to management, which shocked investors to such an extent that the stock took a 40% write-off within moments, putting it in the $220-$230 range where it has held ever since.* It was at this time that Netflix management began to think about ads. The ad-supported version will be much cheaper, and people will simply have a choice.
Another thorn is competition. It's not like it used to be that Netflix has a near monopoly on online streaming of movies and TV shows. There's HBO Max, Disney+, etc. With the introduction of cheaper subscriptions, people will probably start coming back to Netflix again. The market rewarded the official announcement of the introduction of ads with a 10% rise in the share price on Thursday.*
Netflix, Inc.'s 5-year performance. Source: tradingview.com
* Past performance is no guarantee of future results.
