2022 Netflix and Streaming Services

Who among us hasn’t shared a password or two among friends and family? Well, those free rides may soon be over starting with a new Netflix policy.

The company has been wringing its hands for nearly six months trying to figure out how to approach its tsunami of sharing which is estimated to be 33% of all Netflix subscribers.

Doing the math, that’s a fairly substantial choke on the company’s revenue stream, too – nearly $739 million a month possibly lost to password-sharing.

Netflix isn’t going to try and recoup all that lost revenue by making every password sharer repent for their sins, but it is instituting a plan that it thinks is a win-win. Beginning in early 2023, it will add fees to anyone’s plan who has “extra member” sub-accounts outside of a subscriber's household.

How much is this going to cost you?

While the company did announce its intentions, it remained mum on how much this is going to cost any rogue customer. However, the fee schematic is currently being tested in a handful of Latin American countries and weighs in at close to a fourth the rate of a "standard" Netflix plan. 

Grumbling aside, if that winds up being the case in the U.S., each subaccount would cost somewhere between $3.50 and $4, a far cry from being a total deal breaker. Besides, Netflix can probably make up more of its lost revenue as new subscribers buy into its new ad-supported streaming service. 

The forecast for that new ad-driven model is good, at least in the company’s eyes. “We really anticipate that [the ads-based plan] is going to be a pro-consumer model that will be more attractive, bring more members in because the consumer basic price is low,” Gregory K. Peters COO & Chief Product Officer of Netflix, commented in the company’s latest earnings call.

If you can put up with a few ads, Netflix has a new deal for you.

As forecast in July, the mother of all streaming services is rolling out “Basic with Ads” beginning November 3. The new tier is priced at $6.99 a month and available in the U.S. and 11 other countries.

Subscribers who pay for other packages can rest easy, too. They will not be impacted in any way, shape, or form, and still have the Basic $9.99/month, Standard $15.49/month, and Premium $19.99/month

The difference between Basic and Basic with Ads

The company says that Basic with Ads comes with the same features as the current Basic plan, but just a few shades different. 

Still the same: Netflix says that the ad-supported tier will have a wide variety of great TV shows and movies; a personalized viewing experience; and will be available on a wide range of TV and mobile devices.

One plus is that where some subscription services make consumers pay for a whole year to get a big discount, Netflix isn’t. It says subscribers can change or cancel their plan at any time.

New and different: Where is Netflix cutting back? Video quality up to 720p/HD (the same as its Basic plan); a limited number of movies and TV shows won't be available due to licensing restrictions, which the company says it’s working with rights holders to turn around; and there’s no ability to download titles so you can watch something on-the-go.

Now, about the ads: When it comes to ads, Netflix said the new package will have an average of four to five minutes of ads per hour. That's a tad more than the likes of HBO Max and Peacock which reportedly cap ads at under five minutes per hour.

How will those ads play out? To begin with, ads will be 15 or 30 seconds in length and play both before and during shows and films. For parents who want to shield their children from adult’ish ads that might contain sex, nudity, or graphic violence, not to worry – at least, not too much. Netflix said that advertisers have the “ability” to prevent ads from appearing on content that might be inconsistent with their brand. Whether that “ability” comes with agreements from advertisers is too early to tell. 

And other streamings are raising prices

Down the streaming street, Netflix’ competitors are going the other way with their prices. Just this week, Hulu raised the price of its ad-supported on-demand service from $7 to $8 per month, and its ad-free tier from $13 to $15 per month. 

CordCutter’s Jared Newman said that Disney is also raising the price of Hulu + Live TV, Disney+, and the Disney bundle, a package that includes Hulu, Disney+, and ESPN+, on December 8. 

In fact, consumers can expect more bundling – which, like cable TV packages, comes with channels you don’t want.

“The main takeaway here is that Disney really just wants you to bundle everything together, hence the major price hikes on all its individual services, and relatively modest hikes on the Disney bundle,” Newman said, adding that streaming lovers better get ready because we may well be entering the era of nickel and diming.

It didn’t take long after Netflix CEO Reed Hastings hinted that low-end, ad-supported plans might be on their way for the streaming platform to make a move.

On Wednesday, Netflix announced that it is partnering with Microsoft on a “lower priced,” ad-supported plan for consumers that will be offered in addition to its three tiers of ad-free plans. Microsoft’s role in the partnership will be to manage sales, advertising technology, and privacy protection.

“It’s very early days, and we have much to work through,” said Netflix COO Greg Peters. “But our long-term goal is clear: More choice for consumers and a premium, better-than-linear TV brand experience for advertisers. We’re excited to work with Microsoft as we bring this new service to life.”

In the company’s announcement, no actual prices for the service were mentioned.

Netflix took it on the chin a bit in April when quarterly results showed a loss of 600,000 subscribers in the U.S. and Canada. Its quarterly profits were slightly down, sending its stock value falling as much as 25% in after-hours trading. 

Netflix has been served with a shareholder lawsuit that accuses the company of misinforming investors about its capability to keep adding subscribers over the past few months.

The suit, filed in a U.S. District Court in San Francisco, asks for damages over declines in Netflix's share price, which has dropped by 69.94% over the past six months. The company originally estimated that it would gain an additional 2.5 million new subscribers, but it actually lost 200,000 in the final tabulation.

While the lawsuit is against Netflix as a company, the real target is Netflix’s executives and their failure to admit that the company’s growth was slowing down because of increased competition. Claimants say that has caused the platform's net subscriber count to dwindle.

“Public documents and statements issued or disseminated in the name of the Company were materially false and/or misleading,” the suit read, adding that Netflix knew those statements would be disseminated to the investing public and “knowingly and substantially participated” in getting that message out.

What’s the real reason behind Netflix’s slide?

Netflix’s troubles are real. It lost subscribers for the first time in more than a decade during the first quarter of 2022. Unfortunately, things may not be getting better anytime soon because the company is projected to lose another 2 million subscribers in the second quarter.

Tech expert Jared Newman theorizes that Netflix's price hike was the real reason behind its subscriber loss. For U.S. subscribers, Netflix pushed the cost up to $9.99 per month for its cheapest plan during the last quarter. It also now costs $15.49 per month for a standard plan and $19.99 per month to get access to 4K video.

“Never mind the clear cause and effect on display here; Netflix argues that the bigger sources of its current woes are competition and password sharing. It plans to address the former with better content, and the latter with stricter countermeasures,” Newman said. 

"People have a limited amount of money they’re willing to spend on streaming services, and each time the cost of Netflix increases, competing services and password sharing start to look like more compelling alternatives. The hard truth for Netflix is that it can’t keep raising prices without exacerbating those other issues. That may explain why the company doesn’t want to fixate on those price hikes too much."

Netflix’s growth seems to have hit the proverbial wall. When it unveiled its first-quarter earnings on Tuesday, the streaming leader said its hope to add 2.5 million subscribers in the first three months of 2022 came up empty – drastically empty. Instead, it lost 200,000 subscribers in Q1 and expects to lose two million more by the end of June. 

The company’s reported revenue was up 10% to $7.9 billion, likely due to an increase in subscription prices. But, its quarterly profit was slightly down at $1.6 billion; the company earned $1.7 billion during the same timeframe in 2021. The sting from the company’s admission was swift and strong, with its stock value falling as much as 25% in after-hours trading. 

While Netflix admits that its revenue growth has slowed considerably, company officials are reportedly telling investors that streaming is winning over "linear" TV (e.g., a regular TV network like CBS.) Officials also claim that Netflix titles are very popular globally. 

At a crossroads 

Netflix stopped short of blaming COVID-19 for the downturn in revenue, but it did say the pandemic-driven surge in streaming had an effect.

“The big COVID boost to streaming obscured the picture until recently,” the company said in a filing. “However, our relatively high household penetration - when including the large number of households sharing accounts - combined with competition, is creating revenue growth headwinds.”

The company didn’t stop there with its blame game. It also pointed its finger at “sluggish economic growth, increasing inflation, [and] geopolitical events such as Russia’s invasion of Ukraine"

There’s also a tsunami of competition that Netflix didn’t count on facing. In its filing, the company pointed to Prime Video (Amazon), Disney+, Hulu, and YouTube as “robust” competitors that were created by traditional entertainment companies that realized streaming is the future.

The two competitors that Netflix charted with the most growth were Prime Video and Disney. However, it claims that its subscribers seem to be happy and that its U.S. television viewing share has been steady or ascending, according to Nielsen. “We want to grow that share faster. Higher view share is an indicator of higher satisfaction, which supports higher retention and revenue,” the company stated.

Advertising revenue might also be a salve that could boost the company's bottom line. CEO Reed Hastings said Netflix will try to figure out if it can add in "low-end, ad-supported plans over the next year or two" -- a move that MarketingDive said would put Netflix at parity with other streaming platforms like HBO Max and Disney+.

Is there a password-sharing crackdown on the way?

One thing that Netflix is likely to keep chipping away at is password sharing. Earlier this year, it announced that it may start charging subscribers more if they share their passwords. And there seems to be a lot of that going around – an estimated 100 million households are reportedly breaking Netflix’s rules by sharing passwords.

The big question is just how far Netflix will go to stop password sharing. Hastings said in a previous quarterly review that he knows the company has to be careful with whatever approach it takes.

“We test many things, but we would never roll something out that feels like ‘turning the screws,’ as you said,”  Hastings said. “It has got to feel like it makes sense to consumers, that they understand. And [Netflix’s chief product officer has] been doing a lot of great research trying variants that harmonize with the way consumers think about it.”

Hastings described the practice of password sharing as "something you have to learn to live with" and that much of it is "legitimate" between family members.

Since the start of the pandemic, steaming videos at home has become increasingly popular. If you’re a Netflix subscriber, the cost of streaming is going up.

Netflix has announced a price increase for all packages in the U.S., the sixth since 2014. The price hikes will be phased in over the next few weeks for existing subscribers, but they are going into effect immediately for new customers.

The basic plan, which allows for viewing on one device at a time, is going up by $1 to $9.99 a month. The standard plan, which provides HD streaming on two devices at once, is going up from $13.99 per month to $15.49.

The premium plan, which gives subscribers the capability to view in 4K quality is also going up by $2 a month, pushing the price to $19.99 – on par with some premium cable channels.

Unhappy customer

Michael, of Arcadia, Calif., may balk at the increase. In a ConsumerAffairs review of Netflix last month, Michael said he had the basic plan, not realizing he would be required to pay more to steam in 4K

“I Googled it today and found out that because we're on the basic plan we only get the SD (standard definition) quality I mentioned above,” Michael wrote in the review. “If we want better-looking movies on our TV then we have to pay for it by upgrading to Standard for full HD (1080p) for $13.99 or Premium for 4k quality for the cost of $17.99.”

Of course, those charges were in effect last month. Now it’s $2 a month more.

“I never heard of such a thing and we're not willing to pay more to get the high quality we should be getting,” Michael concluded.

Investing in content

Netflix says the higher prices are necessary to pay for its investment in programming. In a statement to Deadline, Netflix said the company realizes that consumers have lots of viewing options and that it must compete on quality, not just price.

 “We’re updating our prices so that we can continue to offer a wide variety of quality entertainment options,” a company spokesman said. “As always we offer a range of plans so members can pick a price that works for their budget.”