For about a decade, it seemed like Netflix wouldn't stop growing. The company became synonymous with the idea of streaming itself: cozy evenings and binge-watching, setting a high standard for the rest of the industry. The company released a mountain of original content as its subscriber count continued to grow, bringing its market cap to a peak of more than $300 billion in 2021.
But when the company started losing subscribers in 2022, executives made some complete about-faces, and nothing has been the same since. Netflix needed to make changes – and quickly – if it wanted to please investors. This year, Netflix did something co-founder Reed Hastings has consistently opposed: It introduced a cheaper, ad-supported tier, with the goal of attracting a new pool of subscribers while benefiting from advertiser revenue.
Despite a slow start, Netflix's ad-supported tier managed to gain 5 million subscribers in just six months. The plan has now become one of Netflix's most popular tiers, as its most recent earnings report revealed that 40 percent of new subscribers are choosing the cheaper option. Netflix has simply expanded the plan further, adding 1080p video and the ability to watch two streams at the same time. But the company's plan to turn around its shrinking subscriber base didn't end there.
“Netflix recognizes that they are one of the few must-have streaming brands for many households.”
The streamer went a step further by cracking down on password sharing, something Netflix is now known to be willing to do a tweet from 2017. The move hasn't done much to improve morale among a subscriber base hit by frequent price hikes, and yet it still appears to be working in Netflix's favor. Shortly after the crackdown began, Netflix said that paid sharing resulted in more sign-ups than unsubscribes and also increased revenue.
It wasn't until another price increase last fall (the third in three years) that Netflix pushed the boundaries further. Subscribers were also no longer able to sign up for the cheapest ad-free plan at $11.99 per month. The move now is to completely eliminate the plan for those who have already signed up in order to move users to the ad-supported plan at $6.99 per month or the standard plan at $15.49 per month.
While it may seem counterintuitive to direct users to the cheapest tier, ads are now a big part of Netflix's business.
Last year, the company said it had already generated higher revenue per customer with its ad-supported plan than with its $15.49 ad-free plan, meaning its $11.99 per month basic plan probably won't contributes a lot to Netflix's bottom line. During an earnings call this week, co-CEO Greg Peters said the company's top priority in the advertising business is “scale.” For Netflix, that means “making the advertising plan more attractive” and “changing our plans and pricing structure elsewhere where we deem appropriate.”
Then there's Netflix's $5 billion deal for WWE Monday Night Raw. Sources tell CNBC that Netflix will not show ads to subscribers of its ad-free tier during Raw. If true, users of Netflix's $6.99 plan would continue to see commercials throughout the three-hour show, providing another revenue driver for the streamer.
“WWE content is accustomed to a younger demographic, which allows Netflix to perhaps reach parts of the larger audience that it couldn't reach through lower prices alone,” Paul Erickson, founder and head of Erickson Strategy & Insights, told The Verge. “Compared to their other recent moves to eliminate the lowest price ad-free tier, I would say that, much like the rest of the industry, they are looking to improve their bottom line.”
And Monday Night Raw isn't a traditional type of sports broadcast — it's “sports entertainment,” as Netflix co-CEO Ted Sarandos put it in the company's most recent earnings call. According to Erickson, this is a plus for Netflix because it increases engagement, meaning “people who watch it tend to keep watching.” Erickson also points out that unlike traditional sports, WWE is not seasonal, so Netflix can continue to stream the show for the entire duration of the 10-year membership – and interested users can keep the subscription, without any off-season breaks that can lead to cancellations.
All of these changes result in a very different Netflix than the one we saw a few years ago. Netflix doesn't shy away from what it does, even because it can't be. After years of competing for subscribers, streaming services now have to prove that they are actually profitable. That's led streamers — not just Netflix — to raise prices and combine their services into a single app, like Max and Disney Plus with Hulu. “Netflix recognizes that they are one of the few must-have streaming brands for many households,” says Erickson. “They must maintain this title as an essential service even in the face of aggressive competition.”
Netflix is no longer synonymous with streaming, in part because it is no longer the only game in town. But even today's Netflix is a far cry from what it once was, and it will inevitably move further and further away from that original vision. This ideal of a streamer was fueled by an ever-rising stock price, which has now become a reality again. As for what this future means for streaming – whether it will soon become a mix of live and on-demand content with advertising – one thing is clear: Netflix's rapid evolution allows the company to compete in a more competitive industry than ever before to stay at the top. From here there is no turning back.