Netflix’s Reed Hastings Bows to Advertising Reality

Hell has frozen over. Netflix co-CEO Reed Hastings’ revelation tonight that he is willing to introduce a lower-priced tier of service supported by commercials is a ground-shaking strategic shift for the video-streaming pioneer. In the past he had resolutely opposed adding advertising, even as most Netflix rivals had done so. But Hastings is nothing if not a realist. His change of heart came as Netflix reported a first-quarter drop in subscriber numbers and projected a more severe falloff in the second quarter. Netflix shares plunged 25% to their lowest point since 2019 in response.

In its commentary on the quarter, Netflix blamed its subscriber stagnation on competition from newer streaming services and widespread password sharing by Netflix subscribers. But the reversal on advertising is an implicit acknowledgement that Netflix has become uncompetitive on price, particularly since its recent increase. That increase was a mistake: Netflix raised prices as inflation was causing households to tighten their belts and the array of streaming options was widening. Netflix is now the priciest service out there . By introducing a cheaper tier with ads, Netflix will get a shot at a segment it is now missing out on: people willing to sit through ads if it means paying less for a service.