Netflix adverts: why has it lost subscribers, will it stop password and account sharing - changes explained

The first major drop in subscriber numbers has rattled Netflix and its shareholders, prompting the streaming service to make some changes that it once considered taboo.

Netflix have announced they are trialling an “add a home” feature which will see the end to account sharing and have confirmed a cheaper ad-supported tier is in the works.

The company is trying hard to make up for the loss of 200,000 subscribers in the first quarter of 2022.

With a projected a loss of another two million subscribers, here’s everything you need to know about the divisive changes being implemented by the company.

Why have the numbers dropped?

Since Netflix launched worldwide six years ago, it has gone from strength to strength.

When the first Covid-19 lockdowns were introduced in early 2020, it saw an influx of new customers, stuck at home and with more free time to consume its content.

But since many lockdowns have now lifted, the demand for such content has waned.

Genuine streaming rivals have also sprung up since then, with the likes of Apple TV+ and Disney+ - both overseen by companies with massive budgets - eating into Netflix’s once dominant market share.

The drop has also stemmed in part from Netflix’s decision to withdraw from Russia in protest at the war against Ukraine, resulting in an instant loss of 700,000 subscribers.

Then there’s the ongoing cost of living crisis, which has seen families opt to give up on streaming services to focus on more essential items as the purse strings tighten.

Netflix projected a loss of another two million subscribers in the current April - June 2022 quarter.

Will Netflix stop account sharing?

Netflix has announced that they will be trialling an “add a home” feature in their next update.

It will effectively see the end to account sharing which has long been a normal practice among Netflix subscribers.

Multiple profiles are allowed on the same account - say, for instance, if it’s being shared amongst a family - but some users take things a step further, willingly sharing their passwords with friends and effectively granting them free access to the streaming service.

The California-based company estimated that about 100 million households worldwide are watching its service for free by using the account of a friend or another family member, including 30 million in the US and Canada.

The “add a home” feature, which is currently being trialled in Argentina, the Dominican Republic, El Salvador, Guatemala and Honduras, will see users having to pay to share their password.

Users will be charged for the ability to share their accounts and use new devices.

Prices are expected to be less than the subscription fee, but it means if you use an additional device to watch Netflix outside of your home, you are going to have to pay for the privilege.

Here is how the “add a home” feature will work:

• One home per account: each Netflix account will include one home
• Buy additional homes: to use your Netflix account in additional homes you will need to pay
• Travel included: you can watch while outside the home on your tablet, laptop or mobile
• New manage homes feature: you can control where your account is being used and remove homes at any time

Will Netflix introduce ads?

The firm offered no additional information about how a cheaper ad-supported tier would work or how much it would cost.

Other streaming services allow ad-supported content, offering much cheaper subscription alternatives in exchange for the slight annoyance of having to sit through commercials.

Others are able to provide content to users entirely for free, being funded entirely by advertising revenue.

On this question, Hastings said: "Those who have followed Netflix know that I've been against the complexity of advertising, and a big fan of the simplicity of subscription. But, as much as I'm a fan of that, I'm a bigger fan of consumer choice."

He added that "it's pretty clear" that ad-supported services are working for rivals Disney and HBO.

How likely are the changes?

It will all depend on how the trial for the proposed changes goes.

Netflix’s first loss of subscribers has seen its shares plunge by more than 25% in extended trading - if that stock drop continues, shares could lose more than half of their value so far this year — wiping out about 150 billion dollars (£115 billion) in shareholder wealth in less than four months.

So the company will be keen to recoup its losses, though it must be careful how it does that.

In 2011, the streamer was stung by a customer backlash when it unveiled plans to begin charging for its then-nascent streaming service, which had previously been bundled for free with its traditional DVD-by-mail service before its international expansion.

The changes outlined above would likely be unwelcome by current subscribers.