Netflix's CEO says he's open to creating a lower-priced tier with ads as the company bleeds subscribers

• Netflix now says it's open to cheaper ad-supported tiers for its streaming service.
• The major reversal came as Netflix said it lost 200,000 subscribers in its first quarter.

Netflix is open to introducing cheaper, ad-supported tiers for its streaming service — after years of resisting the option.

"Those who have followed Netflix know that I have been against the complexity of advertising and a big fan of the simplicity of subscription," co-CEO Reed Hastings said in an earnings interview Tuesday.

"But as much as I am a fan of that, I am a bigger fan of consumer choice, and allowing consumers who would like to have a lower price and are advertising-tolerant to get what they want makes a lot of sense," he added. "That's something we're looking at now, we're trying to figure out over the next year or two. But think of us as quite open to offering even lower prices with advertising as a consumer choice."

Hastings didn't say how much a cheaper tier might cost.

In September 2020, Hastings told Variety that going ad-free was "the best capitalism" for the company, as opposed to a philosophical objection to ads.

The shift comes as Netflix said it lost 200,000 subscribers in its first quarter — the streaming service's first decline since 2011. This sent shares plunging 25% on Tuesday. Netflix's share price is about 40% lower year-to-date.

A cheaper ad-supported tier could give Netflix's books some support.

The company's forecasting the loss of another 2 million subscribers in its current second quarter and said revenue is not growing as fast as it would like in the near term.

"It's pretty clear that it's working for Hulu. Disney is doing it. HBO did it," Hastings said. "I don't think we have a lot of doubt that it works."

Ahead of Hastings' comments, industry experts cast doubt on the viability of an ad-supported Netflix, Insider's Elaine Low and Ashley Rodriguez reported. Needham analysts estimated in a January 21 investor note that Netflix could make $9 billion a year in potential revenue by adding ads.

Netflix last hiked prices for in January. A Basic plan now costs $9.99, the Standard plan costs $15.49, and the Premium plan costs $19.99.

Read Insider's deep-dive on the economics of an ad-supported Netflix.