Netflix shares plummeted over 30% on Wednesday following an earnings report that said the company lost paying subscribers for the first time since 2011.
The streamer said that several factors led to the loss of subscribers, including competition from other streaming services and people spending less time at home in front of their TVs as pandemic restrictions have lifted.
Netflix also blamed password sharing for its growth problems, saying that 100 million households were sharing passwords instead of paying for more than one account. Having multiple users share accounts "means it's harder to grow membership in many markets," the company said in its letter to shareholders.
With an additional two million paying subscribers forecasted to cancel their memberships in the next quarter, Netflix has laid out a two-pronged plan to get its business back on track, which may result in major changes for users. Here's what to know.
Though Netflix has tolerated its users sharing access to accounts — even going so far this week as to say that it "helped fuel our growth by getting more people using and enjoying Netflix" — it appears to be gearing up to make it a thing of the past.
The company has already been testing ways to charge password sharers extra fees. Users in Chile, Costa Rica and Peru have been paying an extra $3 per month to add extra profiles to their accounts.
Netflix's chief operating officer Greg Peters said on this week's earnings call that the company "will go through a year or so of iterating, and then deploying that."
Peters did not say what Netflix's plan will look like, but said they are trying to find "a balanced approach" for the crackdown on password sharing.
Just three months after raising prices for its basic, standard and premium plans, Netflix is leaving the door open for a cheaper, ad-supported tier.
CEO Reed Hastings said on the earnings call that the company is considering adding a cheaper tier if it means keeping more users on its platform. He cited successful ad-supported tiers from Hulu and Disney+ as the impetus for Netflix to embrace commercials.
"Those who have followed Netflix know that I have been against the complexity of advertising and a big fan of the simplicity of subscription," Hastings said. "But as much as I am a fan of that, I am a bigger fan of consumer choice, and allowing consumers who would like to have a lower price and are advertising-tolerant to get what they want makes a lot of sense."
The plans aren't imminent, however. Hastings said it may take as much as two years to roll out the cheaper membership tier.