Traditional T.V is partly funded by advertisements that are flighted in between the content. Even Multichoice’s DStv uses the same model even for its premium customers who have to live with ads. It’s something that Netflix has sworn never to do until now. Netflix recently announced that they lost subscribers this quarter, the first time since they introduced streaming. Their shares took a beating and have lost as much as 37% of their value on the back of this news. Now some are reporting that Netflix, in response will soon be introducing ads in response to this. This is not true.

Netflix did not say that it will soon be introducing ads on its packages as most headlines seem to be implying:

I’ve been against the complexity of advertising and a big fan of the simplicity of subscription.
But…allowing consumers who would like to have a lower price and are advertising-tolerant get what they want makes a lot of sense…We’re trying to figure [it] out over the next year or two.
What Reed Hastings, Netflix’ CEO said

It’s not clear why those who are reading this statement, even those for whom English is a first language, are getting the Netflix is going to introduce ads soon message. In fact, when pressed on when exactly these ad-funded packages would be introduced, Netflix was non-committal saying that this could happen in a few years. Again it’s important to understand what is it Netflix is saying could happen in a few years. That is launching ad-support packages. Netflix did not say that they would introduce ads to current packages that are already expensive as it is. The CEO simply said he was open to the idea of introducing ad-supported cheaper packages.

Mobile could be key but this was to be expected

The other line of reporting seems to suggest that Netflix’s loss of subscribers is a good thing for its rivals. It’s not. This is not a zero-sum game that some anaemic analysts’ reports are making it sound to be. First off just because someone stops being a Netflix subscriber doesn’t mean that they will become say a Disney+ subscriber. They can have both subs and can cancel both subs. You cannot infer that it’s good news for rivals in the same industry unless they publish data showing gains at the same time and even in such a case it doesn’t mean that those Netflix subscribers have switched to Disney+. It could be just that Disney+ has launched in new markets as they are doing in South Africa next month.

Netflix’s rivals are smaller and still have room for growth. There are so many people who are into streaming that have not yet joined Disney+ for example. It seems Netflix which has over 200 million subscribers has reached a growth plateau. The boom they enjoyed during the pandemic is reversing and some of those people who subscribed during this period are now cancelling as the world reopens. In a way, the stagnation of growth and cancellations are to be expected.

Netflix to their credit seems to be aware of this. They are now focusing on one impediment to their growth-account sharing. One strategy that might not boost their subscriber numbers but will help with revenue is their novel approved account sharing scheme. They are piloting a scheme where people can share their accounts for a certain fee. This can be useful for families that don’t necessarily live in the same household. For example when you go to University and still use your parent’s Netflix password.

Another potential way to boost subscriber numbers is to introduce mobile-only packages in more markets including Africa. India already enjoys a mobile-only Netflix package that is around US$3. Subscribers can watch on their mobiles but cannot cast or stream on their T.V.s This will allow Netflix to expand in low-income regions such as Sub-Saharan Africa. Another push could be through Netflix specific bundles similar to those peddled by mobile network operators for WhatsApp. The Facebook-owned service owes a large part of its success to these WhatsApp bundles.