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In context: Streaming networks are finding themselves in a position to offer cheaper subscriptions by creating ad-supported tiers. For many, such as Disney, this is a trivial matter since it owns everything it broadcasts. However, it's not such a simple matter for streamers, like Netflix, that license a lot of content.
In a Q2 2022 earnings interview, Netflix executives hinted that their plans for an ad-supported subscription would not include the entire VOD library when it launches later this year. The problem stems from the company lacking the licensing to move some content to the cheaper tier.
However, Netflix co-CEO Ted Sarandos said that if the company launched the new tier today, it would still have enough content to make for a satisfying experience for subscribers.
"Today, the vast majority of what people watch on Netflix, we can include in the ad-supported tier," Sarandos said. "We don't think it's a material holdback to the business."
Netflix CFO Spencer Neumann added, "We can launch today without any additional content clearance rights."
Sarandos indicated that the streaming giant is currently negotiating agreements with various studios to obtain additional content licensing. He said he is confident they will clear more content before the product launches, but "certainly not all of it."
Good Lord, I'm excited for Bridgerton Season pic.twitter.com/DaCTUKW7Im— Netflix (@netflix) July 20, 2022
The execs stopped short of mentioning specific programming, but it clearly sounds like it pertains to shows and movies outside the Netflix production umbrella. So customers will likely see all their Netflix Originals, such as Stranger Things, Bridgerton, and Hustle on the cheaper rate. According to financial chief Neumann, none of the missing content is a "must-have."
The Netflix CFO is probably thankful that he appended remarks earlier this year about Nextlix not taking the ad-supported path with a "never say never." In March, Neumann expressed that the company had no interest in following Disney's lead regarding ad support because "it didn't make sense" for the company. It seems to be making sense now, though.
In May, analytics firm Antenna revealed that Netflix lost more than 3.6 million subscribers in Q1 2022. Those losses were more than a million over the previous five quarters combined. That news was accompanied by two rounds of layoffs that eliminated 175 jobs. In Q2, attrition dropped to about 970,000 cancelations, showing that subscriber bleed might be tapering off.
In July, the streaming giant initiated a password-sharing crackdown, asking subscribers in several countries to pay extra if their accounts were used away from their primary residence for more than two weeks. The cost-recovering effort occurred right after the ad-based tier's announcement, indicating that Netflix is getting hit hard in the pocketbook.
Netflix's financial concerns partially stem from increased competition in the sector as cable companies and studios continue to push to make streaming the new cable, much to the dismay of cord-cutters everywhere. However, the streamer has also been producing much more "woke" programming lately. It has become lax with creating non-divisive entertaining content — a failing that is probably driving a significant portion of its cancellations.