- Reports suggest shaky started for ad-supported service
- Netflix said to be offering refunds to advertisers
- Shares have halved in 2022
Streaming platform Netflix (NFLX:NASDAQ) has seen much of the recent optimism around the stock punctured by reports of a weak start for its ad-supported subscription option.
Specialist publication Digiday said audiences for the service have fallen short of the numbers Netflix had promised to advertisers. Quoting executives from five advertising agencies it suggested Netflix is having to offer refunds to advertisers.
Netflix has promised the ad-supported option will carry just four to five minutes of advertising per hour. It launched in the US on 3 November with a monthly subscription fee of $6.99.
The initiative was seen as key to addressing slowing subscriber numbers in an extremely competitive streaming market. Subscriptions fell for the first time earlier in 2022 and it was hoped advertising would also provide another big revenue stream for the business.
While recent Netflix releases have enjoyed significant buzz, including Wednesday and the Harry and Meghan documentary, the company is struggling with the costs of content, threatening its profitability.
NETFLIX SHARES HAVE HALVED IN 2022
The share price has more than halved since the start of the year with a mini-recovery stopped in its tracks overnight with an 8.6% fall to $290.4.
AJ Bell investment director Russ Mould commented: ‘Netflix’s new cut-price advertising-led subscription tier was meant to be its saviour. It would bring in more subscribers and help to retain existing ones who were thinking about leaving because they could no longer afford the standard service.
‘Not only would it bring in more revenue on the subscription side, but Netflix would also be paid for carrying third party promotions. Furthermore, the lower price point might even persuade people who previously borrowed a friend or family’s account to get their own one.
‘Billionaire investor Bill Ackman of Pershing Square dumped his company’s holding in Netflix as soon as the advertising plan was announced, saying its business model had changed as advertising income was unpredictable. Many people mocked Ackman after Netflix’s share price then soared, but they’re not looking so clever now.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Tom Sieber) and the editor (James Crux) own shares in AJ Bell.
