Netflix’s New Plan Collapses

By Douglas A. McIntyre Published Dec 21, 11:30AM EST

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Netflix’s New Plan Collapses — © hocus-focus / iStock Unreleased via Getty Images

Netflix is in so much trouble that it decided to change its business model. Instead of charging people for subscriptions that allow them to watch TV shows and movies without commercials, Netflix will return to a very old model: watching TV shows and movies with advertising. Viewers still have to pay a subscription fee, but its price is cut slightly if they accept the ads. New data show consumers rejected the novel approach.
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Research company Antenna looked at TV subscription models. Its “The Launch of Netflix Basic With Ads” report noted, “Antenna finds that 9% of Netflix Sign-ups in the U.S. in November were to the ‘Basic with Ads’ plan, making it the least popular of their plan options.” Since Netflix adds a few million subscriptions per quarter, the total for the ad-supported service must be in the low hundreds of thousands.
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The percentage of people who accept ad-supported streaming services was much higher at Netflix’s competition. HBO Max had a 21% figure. At Paramount it was 55%.

In the most recent quarter, Netflix only added 2.4 million subscribers, which is very low based on past numbers. It also forecast trouble ahead, particularly the results of its fourth quarter.
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Management made two telling comments. The first is that it believes the ad-supported business will do well. The other is that it has a head start over its competition. Management further argued that all new streaming services lose money and that the total operating losses of these services will be over $10 billion this year.
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Management did not say that its competition is prepared to lose billions of dollars to catch it. Since the financial success of streaming has started to fall apart, this may not be a good idea, but it is not an idea that will go away.

Netflix hoped that ad-supported streaming would allow it to return to rapid growth and keep competition at bay. Early results show that it is not working.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.