Netflix (Nasdaq: NFLX) founder and co-CEO Reed Hastings said that the company had been too slow into moving into advertising and offering customers an option for an ad-supported tier. The company recently offered this option as it looks for ways to boost subscriber growth which has fallen flat in recent quarters.
Hastings said that he was too focused on competition for eyeballs from Facebook (Nasdaq: META) and Google (Nasdaq: GOOGL) given the abundance of free content on these platforms. At the New York Times Dealbook conference, he remarked that "I didn't believe in the ad-supported tactic for us. I was wrong about that. Hulu proved you could do that at scale and offer customers lower prices. We did switch on that, [but] I wish we had flipped a few years earlier on that, but we'll catch up."
Netflix just launched its ad-supported version for $6.99 in partnership with Microsoft (Nasdaq: MSFT). Hastings said that given his presence on the Facebook board of directors made him pessimistic that Netflix would be able to offer something equally attractive to advertisers given the abundance of data and targeting that the search and social media giants can enable. However, he said that the plunging viewership of 18-49-year-olds in traditional TV meant that there was a large appetite to advertise to Netflix's audience which is full of 18 to 49-year-olds.
While in many ways, Netflix is a streaming pioneer, the company is following in the footsteps of other streamers like Hulu, HBO Max (NASDAQ: WBD), Peacock (NASDAQ: CMCSA), and Disney (NYSE: DIS) in offering a cheaper, ad-supported option.
Currently, Netflix is seeing increased churn in subscribers following its decision to hike prices on its offerings. In the last quarter, it lost 600,000 subs. Another avenue for growth is gaming which the company sees as another way to keep people hooked, although it hasn't been explicit about its plans in this area.
YTD, Netflix's stock is down 46%. However, it is up nearly 75% from its May low as the company got investors intrigued by its plans for an ad-supported tier and price increases. The company is forecast to earn about $11 per share in 2023 which gives it a forward P/E of 30.