The streaming leader will roll out cheaper, ad-supported options for subscribers in the next few years and will start cracking down on people sharing passwords. Netflix will also reduce spending on movies and TV shows in response to customer churn.

Co-founder Reed Hastings has said that he doesn’t want to serve ads and has no issues with password sharing. But the company is changing course after losing 200,000 customers in the first quarter, the first loss since 2011. Netflix also expects to lose another 2 million customers in the current second quarter, which is for a company that regularly grows 25 million or more annually.

Wall Street still expects Netflix to add 2.5 million customers in the first quarter. The stock has fallen more than 40% this year, falling as much as 27 per cent to $256 in after-hours trading. Hastings and co-CEO Ted Sarandos have previously cited the company’s slowing subscriber registrations as a pandemic-related speed bump that has accelerated Netflix’s growth in 2020. But the company’s growth hasn’t returned to pre-pandemic levels.

Management pointed to four reasons, including the prevalence of password sharing and increasing competition. In addition to its 221.6 million users, more than 100 million households use its service without paying for it, the company said. The Los Gatos, California-based company is experimenting with ways to sign up those viewers, such as asking people who share someone else’s account to pay more.

Netflix’s troubles are a warning sign for its peers and rivals. The US entertainment giant has merged and restructured to compete with Netflix after seeing millions of customers ditch pay-tv for streaming. Investors have encouraged this strategic shift, boosting shares of companies like Walt Disney that have shown a commitment to streaming.

Disney fell 5.2% in after-hours trading after Netflix reported its outlook, while HBO Max owner Warner Bros. Discovery fell 2.8 per cent. Shares in streaming set-top box maker Roku Inc. fell as much as 8.3 per cent. Fighting password sharing is a risk for a company that started by offering customers cheaper and more convenient alternatives to cables. By urging customers to pay – and inserting ads – Netflix began to resemble what it replaced.

But the company needed help after losing customers in three of four regions in the first quarter, including more than 600,000 in the US and Canada. Netflix blamed much of that on higher prices, saying the drop was expected. The Russian invasion of Ukraine forced the company to cease service in Russia, costing the company another 700,000 customers and 300,000 in EMEA.

Overall, Netflix had forecast subscriber growth of 2.5 million in the first quarter, roughly with Wall Street estimates. In the current period, analysts expected earnings of 2.43 million. Revenue rose 9.8% to $7.87 billion in the first quarter, missing analysts’ expectations. Earnings per share of $3.53 easily beat estimates of $2.91. Netflix added more than 1 million customers in Asia, thanks to new hits like the South Korean drama “All of us dead”.