Ad-Based Netflix Arrives With A Thud

As a publicly traded company, it's simply not good enough to provide an affordable service that people genuinely like. The pressure to deliver quarter over quarter growth often takes on a tendency toward auto-cannibalism; price hikes, customer support cuts, dumb ideas justified through greed, all designed to goose short-term growth, but often at the cost of brand reputation and long term service quality.

That's the metamorphosis currently underway at Netflix.

After years of explosive growth, the company lost nearly a million subscribers between April and July. In part due to new competition in streaming, but also because Netflix executives are stuck in this auto-cannibalism loop; sacrificing what's popular about the service (affordability, no ads, few weird restrictions, decent content) to feed Wall Street's insatiable maw.

Instead of focusing on service quality and not being annoying, Netflix executives spent much of the last year insisting that a ham-fisted crackdown on password sharing and a new ad-based tier would fix what ails the company. But right out of the gate, Netflix's new $7 Basic With Ads" tier was saddled with all manner of annoying restrictions that undermined its entire purpose.

Ad-based customers can't stream in standard HD (all streams are restricted to 720p), can't stream to more than one device simultaneously, can't download films to watch on a plane, and see a 10% smaller catalog overall due to licensing constraints. The ad-based tier also wasn't initially supported on a number of different hardware platforms, including Apple TV or older Chromecast devices.

Shockingly, this all resulted in the new ad-based tier being the least popular option in its first month of life:

Subscription data analytics firm Antenna shared their data with Gizmodo where it noted that just 9% of all new Netflix subscribers opted for the Netflix Basic With Ads Tier last month. The $6.99 a month service launched Nov. 3 in the U.S., but Antenna told the Wall Street Journal over half of those ad-based sign ups were people re-upping their subscription after it lapsed or were joining for the first time.

The hope is to get people hooked on a cheaper tier, then upsell them through annoyance to more expensive, less restrictive tiers. That's basically the upward funnel model the traditional TV sector adopted for decades, working tirelessly to push customers to higher priced tiers or bundles by annoying the hell out of them, since you don't actually want users staying on the cheapest option possible.

A cheaper ad-based tier doesn't really fix what ails Netflix because it's not actually fixing what customers are getting annoyed by. Wall Street doesn't want to embrace any of the things customers actually want (lower prices, improved service quality, fewer obnoxious restrictions) so you get stuff like this designed to look creative and appealing but isn't, actually. It's the inversion of actual innovation.

Stuck under Wall Street's thumb, Netflix seems intent on reducing quality while nickel-and-diming existing customers, which won't work in a hyper-competitive streaming space where consumers actually have the choice of competitors that are still actually focused on quality, affordability, decent support, and customer satisfaction.