SAN FRANCISCO, AP – An unexpectedly sharp drop in subscribers has Netflix considering changes it has long resisted, including minimising password sharing and creating a low-cost subscription supported by advertising.

The looming changes, announced late on Tuesday in the US, are designed to help Netflix regain momentum it has lost over the past year.

Pandemic-driven lockdowns that drove binge-watching have lifted while deep-pocketed rivals such as Apple and Disney have begun to chip away at its vast audience with their own streaming services.

Netflix’s customer base fell by 200,000 subscribers during the January-March quarter, the first contraction it has seen since the streaming service became available throughout most of the world outside of China six years ago.

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

 

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

The erosion, coming off a year of progressively slower growth, has rattled another key constituency for Netflix – its shareholders.

After revealing its disappointing performance, Netflix shares plunged by more than 25 per cent in extended trading.

If the stock drop extends into Wednesday’s regular trading session, Netflix shares will have lost more than half their value so far this year – wiping out about $US150 billion ($A203 billion) in shareholder wealth in less than four months.

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

“Those are over 100 million households already choosing to view Netflix,” Hastings said.

“We’ve just got to get paid at some degree for them.”

To prod more people to pay for their own accounts, Netflix indicated it will expand a trial program it has been running in Chile, Costa Rica and Peru.

In those locations, subscribers can extend service to another household for a discounted price.

In Costa Rica, for instance, Netflix plan prices range from $US9 to $US15 a month, but subscribers can openly share their service with another household for $US3.

While Netflix believes the changes will help it build on its current 221.6 million worldwide subscribers, the move also risks alienating customers.

Netflix was stung by a customer backlash in 2011 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 offering.

In the months after that change, Netflix lost 800,000 subscribers, prompting a apology from Hastings for botching the execution of the spin-off.

Tuesday’s announcement was a sobering comedown for a company that was buoyed two years ago when millions of consumers corralled at home were desperately seeking diversions – a void Netflix was happy to fill.

The company added 36 million subscribers during 2020, by far the largest annual growth since its video streaming service’s debut in 2007.

Netflix began heading in a new direction last year when its service added video games at no additional charge in an attempt to give people another reason to subscribe.

In the most recent quarter, Netflix lost 640,000 subscribers in the US and Canada, prompting management to point out that most of its future growth will come in international markets.