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Netflix turns to ad revenue as subscriptions plummet

Netflix is in trouble. Big trouble. In fact, the revenue problems at Netflix run so deep that it will now offer ad-based subscription services, despite boasting for years that its subscribers could enjoy on-demand content without the hassle of ad interruptions.

Netflix co-CEO Ted Sarandos couched the move as a means of reaching new subscribers rather than a means of staunching the revenue bleed: “We’ve left a big customer segment off the table, which is people who say, ‘Hey, Netflix is too expensive for me and I don’t mind advertising.’”

Sarandos also denied that all Netflix subscribers would have to accept ads as part of their streaming packages: “We’re adding an ad tier. We’re not adding ads to Netflix as you know it today.”

Despite the positive spin from Sarandos, this pivot toward ad-based subscriptions has been a long time coming.

Netflix lost 200,000 subscribers in the first quarter of 2022, and reports now predict that it will lose 2 million subscribers by the end of quarter two. These numbers have taken a serious toll on the value of the company. Time magazine reports that stock prices for Netflix have fallen 70% so far this year, and the loss of millions more subscribers threatens to sink those prices even further.

Because of the heavy revenue losses and the bleak subscription forecast, Netflix has already had to let go of hundreds of employees. According to the Daily Wire and Variety, Netflix has laid off nearly 500 employees and contractors in the past two months.

“While we continue to invest significantly in the business, we made these adjustments so that our costs are growing in line with our slower revenue growth,” a Netflix spokesperson told Variety. “We are so grateful for everything they have done for Netflix and are working hard to support them through this difficult transition.”

This unidentified Netflix spokesperson admitted that the platform has had to lay off employees because of “slower revenue growth,” a sharp contrast in tone from the statement regarding ad-tier options from Sarandos.

Between sour predictions about future earnings and growing competition from rival platforms like Hulu, Peacock, Amazon Prime, and Disney, the worst days at Netflix may still be yet to come.