The throne Netflix has been sitting on for over a decade is starting to shake and crumble as users are canceling their subscriptions. As many are switching off from Netflix and choosing other, more affordable streaming services, it seems that an ad-supported plan may be what the company needs to continue its reign at the top.

While Netflix has steered clear from the ad-supported business model, other streaming platforms have embraced it fully, recognizing that it's a great way to allow users to get familiar with their service for a more budget-friendly price. So Netflix may be forced to follow suit sooner rather than later.

Netflix Admits an Ad-Supported Plan May Be on the Way

During Netflix's Earnings Interview for Q1, 2022, CEO Reed Hastings admitted that the company is now open to creating a new, lower-priced tier that features ads.

As reported by Cord Cutters News, Hastings said:

Those who have followed Netflix know that I have been against the complexity of advertising and a big fan of the simplicity of subscription. 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.

Previously, Netflix said it had no plans to create an ad-supported tier. In fact, in March 2022, Netflix CFO Spencer Neumann said the company believed it had a great business model and that subsidizing through ads was not in the plans.

Why Netflix Needs An Ad-Supported Plan

Netflix has reached a point where creating an ad-supported plan isn't just about joining a "trend" among streaming services. Instead, it's more of a necessity at this point. Here are a few reasons why this may be the case.

1. An Ad-Supported Plan Could Help Netflix Gain Some Subscribers Back

Netflix didn't have great news to report for its first quarter in 2022. With the company's subscription numbers dropping by 200,000 in the first three months of the year, and with no sign of this improving soon, it looks like Netflix changing its mind on ad-supported plans was necessary.

The company's decision to pull its service from Russia following the start of the war in Ukraine is part of why Netflix is losing subscribers. However, a larger chunk of users left because Netflix increased its subscription prices in the US and Canada, as well as other countries. Many fans believe the service is no longer worth the requested price, but a lower-priced plan may bring back some of those who left.

2. It Could Convince Password-Sharers to Get a Subscription

Netflix has also hit a market cap of sorts, with the number of people still willing to subscribe dropping every day. The company has a problem caused by password sharing, as estimates indicate 100 million households are using a Netflix account someone else is paying for. With just over 222 million subscribers worldwide, Netflix is missing out on over a hundred million extra accounts, which has a massive impact on the company's bottom line.

Again, that ad-supported plan may convince at least part of these individuals to create an account of their own.

3. Netflix Could Become More Competitive

While Netflix is trying to battle with the other streaming platforms, the competition offers better prices and ad-supported plans for even lower fees. HBO Max, Hulu, Discovery+, and Peacock, are just a few of those that offer both ad-supported and ad-free plans.

As Netflix is left without blockbusters, beloved network TV shows, and other content its users love, the company has been forced to create its own shows and movies. While some titles are excellent, the quality of most original content is questionable at best.

Having the option to pay less, even with the downside of watching ads, may convince some of those who have moved on to other services to return. After all, while some former Netflix users may not believe watching all those original shows and movies is worth $20 each month, they may find a lower price like $5 to $7/month, for instance, to be closer to what they'd be willing to spend.

Why Netflix Has Steered Clear of the Ad-Supported Plan So Far

Over the past decade, Netflix has skyrocketed in popularity, becoming the one service everyone thinks about when they consider streaming content.

Until now, the company has believed itself to be untouchable. The reality is that the market is now more competitive, and people's streaming budgets are getting stretched to the max because there are so many services. While Netflix has stayed away from ad-supported plans so far, the company needs to adapt if it wants to survive.