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Does Netflix have a future?

Netflix considers adding commercials and cracking down on password sharing.

LOS GATOS, Calif. — A sharp drop in subscribers sent Netflix shares into freefall Wednesday, forcing the company to consider experimenting with ads and -- hold onto your remote -- cracking down on millions of freeloaders who use passwords shared by friends or family.

Looming changes announced late Tuesday are designed to help Netflix regain momentum lost over the past year. Pandemic-driven lockdowns that drove binge-watching have lifted, while deep-pocketed rivals such as Apple and Walt 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 the streaming service has seen since it became available throughout most of the world other than China six years ago.

The drop stemmed in part from Netflix's decision to withdraw from Russia to protest the war against Ukraine, resulting in a loss of 700,000 subscribers. Netflix projected a loss of another 2 million subscribers in the current April-June quarter.

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The steep erosion, which follows a year of progressively slower growth, has given Netflix investors major jitters. The company's stock was down as much as 37% midday Wednesday. If the stock closes at this level, the selloff will have wiped out nearly two-thirds of Netflix's market value since the end of last year, erasing $170 billion in shareholder wealth in less than four months.

The impact on current Netflix customers won't be clear for some time. To David Lewis in Norwalk, Connecticut, it's doesn't seem like a big deal. Lewis shares a premium plan with his three adult children and some of their friends and says they will keep it, even if they have to cut off the friends and each pay for their own accounts.

The Los Gatos, California, 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 U.S. and Canada.

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

In these locations, subscribers can extend service to another household for a discounted price. In Costa Rica, for instance, Netflix plan prices range from $9 to $15 a month, but subscribers can openly share their service with another household for $3.

Netflix offered no additional information about how a cheaper ad-supported service tier would work or how much it would cost. Another rival, Hulu, has long offered an ad-supported tier.

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