Losing customers for the first time in a decade, Netflix Inc. is throwing out all of its old rules.
The streaming leader will introduce a cheaper, advertising-supported option for subscribers in the next couple years, and will start to crack down on people sharing their passwords even before that. Netflix also will curb its spending on films and TV shows in response to the customer losses.
Investors, analysts and Hollywood executives had been bracing for the company to report a sluggish start to the year, but Wall Street still expected Netflix to add 2.5 million customers in the first quarter. The shares, already down more than 40% this year, tumbled as much as 27% to $256 in after-hours trading.
Netflix’s troubles are a warning sign for its peers and competitors. After watching millions of customers abandon pay TV for streaming, US entertainment giants merged and restructured to compete with Netflix. Investors encouraged this strategic shift, boosting shares of companies like Walt Disney Co. that demonstrated a commitment to streaming.
Cracking down on password sharing is a risk for a company that started by giving customers a cheaper, more convenient alternative to cable. By nudging customers to pay -- and inserting advertising -- Netflix begins to resemble what it replaced.
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