SAN FRANCISCO (AP) — An unexpected drop in subscribers sent Netflix shares into a tailspin on Wednesday, forcing the company to consider experimenting with ads and — keep your remote — cracking down on millions of freeloaders who use passwords shared by friends or family.

The startling net loss of 200,000 subscribers rattled investors, who the company had told to expect a gain of 2.5 million subscribers. Shares of Netflix fell 35% on the news, falling to their lowest level since early 2018.

Netflix estimates that around 100 million households worldwide – or around one in three households using its service – stream for free. “We just have to be paid to some extent for them,” co-CEO Reed Hastings said during a shareholder call Tuesday.

Netflix has already experimented in Latin America with programs that use a soft touch to convince unsubscribers to sign up. In Costa Rica, for example, Netflix package prices range from $9 to $15 per month, but subscribers can create subaccounts for two other people outside of their household for $3 per month. On Tuesday, Hastings suggested the company could adopt something similar in other markets.

How Netflix will erect barriers remains unclear, and Hastings said the company will likely spend the next year evaluating different approaches. In a test last year, Netflix prompted viewers to verify their accounts via email or text.

Some current subscribers say even a slight push to reduce password sharing could cause them to log out.

Alexander Klein, who lives near Albany, NY, has been a Netflix subscriber since 2013 and shares his account with his mother-in-law. Although he likes the service, a series of price increases and the loss of licensed shows have annoyed him – and any crackdown on password sharing could be the last straw.

“If they start cracking down on password sharing and I have to pay the full $15 (per month) just for one person watching at a time, that’s frustrating,” he said. he declares. “If they decided to do it, I would probably cancel.”

Netflix is ​​preparing for more subscriber losses before it even tries to weed out the profiteers. The company predicted that its customer base will shrink by an additional 2 million subscribers by the end of June. That would still leave Netflix with 220 million subscribers worldwide, more than any other video streaming service.

Despite some fears that a Netflix crackdown on password sharing could encourage other streaming services to follow suit, experts say it’s not likely.

“I think we would see competitors adopting different strategies here,” said Raj Venkatesan, professor of business administration at the University of Virginia. “Some will follow Netflix’s lead and crack down on password sharing. Others will use it as a differentiator and promise simplicity by saying you can have a password for the family.

For years, amid rapid global growth, Netflix turned a blind eye to the not-so-secret practice of subscribers sharing passwords beyond their homes. And Hastings has spoken passionately in the past about keeping Netflix ad-free.

But competitive pressure is on the rise. Deep-pocketed rivals such as Apple, Walt Disney and HBO have begun to reduce Netflix’s dominance with their own streaming services. The easing of the pandemic is giving consumers entertainment options beyond bingeing on their favorite shows, and rising inflation is forcing families to think twice about how many different streaming services they are ready to pay.

All this gave investors great nervousness for months. Wednesday’s selloff added to earlier issues for the stock, which has lost 62% of its market value since the end of 2021, wiping out $167 billion in shareholder wealth.

Netflix has no choice but to try new ways to boost profits to appease shareholders, said J. Christopher Hamilton, a Syracuse University professor who studies streaming services.

“It feels like Netflix’s ‘come to Jesus’ time,” said Hamilton, a former movie studio lawyer. “They may have been stubborn and disruptive for a long time. But now the honeymoon is over and they have to face the reality of business.

Hamilton thinks the offer of a cheaper version of Netflix’s service that includes ads will be warmly welcomed by consumers looking to save money, as long as subscribers willing to pay more can still watch without commercial interruption.

Ad revenue from streaming services over the next five years is expected to grow faster than subscription revenue, according to recent research from consulting group Accenture. By 2027, Accenture forecasts ad sales in video services to total $21 billion a year, up from just $1 billion in 2017.

Netflix plans to bring advertising into the mix to help bolster its profits, which totaled $1.6 billion in the January-March period, down 6% from the same period last year.

The crackdown on password sharing, however, could be more problematic.

“I think we may be at the point of no return for password sharing,” said Ben Treanor, digital marketing strategist for Time2Play, a gaming site that has recently studied the phenomenon of “scammers online.” streaming”. “I think there’s a chance that if you kick someone out of their family’s account, they might not get their own account back.”

Netflix has already survived customer reactions. In 2011, it unveiled plans to start charging for its then fledgling streaming service, which had been bundled free with its traditional DVD-by-mail service. In the months following this change, Netflix lost 800,000 subscribers, prompting an apology from Hastings for botching the spinoff’s execution. But the business bounced back.

Commercials, meanwhile, have never been a favorite of Hastings, who has long viewed them as a distraction from the entertainment provided by Netflix.

Ravin Ramjit, 41, living in London, will have none.

“I specifically signed up for Netflix at the time because there were no ads,” he said. “The ads are too intrusive and they break your concentration and the continuity of the shows. You might be in a nice, intense scene – you’re really into it – and all of a sudden they’ve gone commercial.

Mainstays like David Lewis in Norwalk, Connecticut, say the changes don’t seem like a big deal. Lewis shares a premium plan with his three adult children and some of their friends and says they will keep it, even if they have to cut the friends and each pay for their own accounts.

“We would keep Netflix and pay for our four family members, even if it was more,” he said. “We like the service and what it offers.”

Netflix started heading in a new direction last year when its service added video games at no extra cost in a bid to give people another reason to subscribe.

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Anderson reported from New York. AP Technology author Matt O’Brien in Providence, RI also contributed to this report.

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