Netflix has lost subscribers for the first time in 10 years, causing the platform to limit password sharing and create a cheaper subscription funded by adverts.
The streaming service, which has long resisted the changes, announced the move late on Tuesday.
Although it has 220 million subscribers, an estimated additional 100 million households access the site through account sharing.
Rivals such as Apple and Walt Disney were able to cut into Netflix’s viewership as binge-watching emerged during lockdowns.
As for the cheaper ad-supported tier, the firm offered no additional information how it would work or how much it would cost.
Another rival, Hulu, has long offered a subscription with ads.
During the latest quarter from January to March, its customer base dropped by 200,00 subscribers – the first time ever since the streaming giant became widely available in 2014.
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.
Netflix projected a loss of another two million subscribers in the current April to 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 percent in extended trading.
If the stock drop extends into Wednesday’s regular trading session, Netflix shares will have lost 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.
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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.
Netflix indicated it will expand a trial program it has been running in Chile, Costa Rica and Peru, where subscribers can extend service to another household for a discounted price.
The service hopes these changes will help it build on its current 221.6 million worldwide subscribers, but they also risk alienating customers to the point they cancel the service.
In 2011, the streamer was previously stung by a customer backlash when it unveiled plans to begin charging for its then-nascent online streaming service, which had previously been bundled for free with its traditional DVD-by-mail service before its international expansion.
In the months after that change, Netflix lost 800,000 subscribers.
Tuesday’s announcement was a sobering comedown for a company that was buoyed two years ago when millions of consumers stuck at home were desperately seeking diversions.
Netflix added 36 million subscribers during 2020.
But chief executive Reed Hastings believes those outsized gains may have blinded management, telling a video conference on Tuesday: “Covid created a lot of noise on how to read the situation.”
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.
Escalating inflation over the past year has also squeezed household budgets, leading more consumers to rein in spending on discretionary items.
Despite that pressure, Netflix recently raised its prices in the US, where it has its greatest household penetration — and where it has had the most trouble finding more subscribers.
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.
Netflix ended March with 74.6 million subscribers in the US and Canada.
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