This is how Netflix worked in its origins 1:22
New York (CNN Business) --
Netflix lost an estimated 1 million customers last quarter, the most in the company's 25-year history.
But it stopped the bleeding in a nightmare year, and the company believes its new initiatives will boost sales and subscribers in the long run.
Those efforts, which include cracking down on password sharing and introducing a lower-priced subscription tier with advertising, were applauded by Wall Street.
Yet they are diametrically opposed to what helped make Netflix king of streaming in the first place: its beloved consumer experience.
Netflix lost 970,000 subscribers in the second quarter of 2022 (a smaller drop than expected)
The streaming company has never been able to compete with rivals like Disney in terms of raw content, but it built its business around giving customers the best overall experience possible.
Now, Netflix is giving up some of that experience so it can grow in the media business.
"They're going to make it hard for people to share with their family, they're going to make it hard for people to see it in multiple places... And, if you choose, for ads to interrupt your content," said Michael Nathanson, media analyst at MoffettNathanson, to CNN Business.
"So the original consumer proposition, which was incredibly great value, is now being turned on its head."
These initiatives are undoubtedly good for Netflix's bottom line, but they're not necessarily what customers are clamoring for.
This could become a problem as the company tries to attract new users, reduce churn, and make money at the same time.
advertising
Ultimately, for Netflix to succeed in the world of streaming, it may have to be less like Netflix.
Netflix timeline: how it became the streaming giant
"We... are free of advertising"
"We... are free of advertising. That remains a deep part of our brand proposition."
So said Netflix in a 2019 letter to shareholders.
The company added that it believed it had "more valuable business in the long run by staying out of competing for advertising revenue" and that it would focus on "competing for viewer satisfaction."
Wow, how things have changed.
Netflix announced last week that it would partner with Microsoft to create its new ad-supported subscription tier and said Tuesday that it expects to launch the offering "around the first part of 2023."
In three years, advertising on Netflix went from "never, ever" to being a foundation for the company's future growth.
That's sure to baffle subscribers, who don't have to watch ads as their current plans will remain ad-free, but now have to choose between a cheaper ad-supported plan or a premium one.
Netflix partners with Microsoft to make its ad-supported choice a reality
"What worries me about an ad-supported model is whether ad revenue can cover the revenue loss from premium subscribers, as a portion of current subscribers will likely switch to the cheaper ad-supported option," he told CNN Business Zak Shaikh, vice president of programming at media research firm Magid.
And what an effect the ads could have on one of the most vital pillars of Netflix: content.
"Will the ads have an impact on Netflix's supposedly 'artist-friendly' environment and content standards?" Shaikh said.
"Will advertisers expect Netflix to censor certain content that it hasn't had to worry about right now?"
What is the password?
Password sharing is another area Netflix is trying to toughen up, but it could prove to be a difficult tactic.
The company said Tuesday that it is in the "early stages of work to monetize the [more than] 100 million households that currently enjoy, but do not pay directly for, Netflix."
Translation: you may have to pay more to share your account.
Netflix has been experimenting with possible solutions by rolling out two test features in Chile, Costa Rica, and Peru called "Extra Member" and "Profile Transfer."
How much will Netflix charge for sharing accounts in Argentina?
What changes and alternatives are there?
Getting users to put money to support their children, friends or colleagues in their accounts will not be easy.
"We know this will be a game changer for our members," the company admitted.
Until recently, Netflix had no problem with subscribers sharing their passwords.
In fact, the service said in its April letter to investors that the policy likely helped fuel its growth by "getting more people to use and enjoy Netflix."
But now the company needs those people to pay.
Will that alienate millions of consumers?
"What worries me is that the goodwill they've built up over the years ... dissipates over time when they do things that are more hostile to consumers," said Nathanson, the media analyst.
"All the incredible courage and goodwill they built is at risk of being compromised."
Netflix
