In early 2022, the number of households paying for Netflix fell when the company had expected it to grow. Should it launch a cheaper plan that shows adverts? This free case asks you to weigh the evidence and decide. It takes about 40 minutes and suits students aged 14 to 16.
Case at a glance
Level: Core, ages 14 to 16
Time: about 40 minutes
Skills: reading company data, understanding customers, pricing, simple maths
Good practice for: the Harvard Student Agencies Case Competition and the Harvard Crimson Global Case Competition
Company: Netflix, United States
The situation
On 19 April 2022, Netflix published its results for the first three months of the year. The number of paying members had fallen by about 200,000. Netflix had forecast growth of 2.5 million.
Part of the fall came from Russia: Netflix suspended its service there, which reduced its member numbers by 700,000. Without Russia, it would have added about 500,000 members, still far below its own forecast. It expected to lose another 2 million members in the next three months.
In its letter to shareholders, Netflix gave several reasons for the slowdown:
Account sharing: besides its 222 million paying households, Netflix estimated that its service was being shared with more than 100 million other households, including more than 30 million in the United States and Canada.
Competition: many new streaming services had launched over the previous three years.
The economy: slow growth, inflation and world events were squeezing family budgets.
The pandemic: strong growth during 2020 had pulled some future sign-ups forward.
At the time, Netflix’s plans did not show adverts. One option on the table was a cheaper plan paid for partly by advertising.
Words to know
Paying member: a household that pays for a Netflix subscription.
Forecast: what a company expects to happen, published in advance.
Cannibalisation: when a new, cheaper product takes customers away from a company’s own more expensive one.
Your questions
From the facts above, list the reasons Netflix’s growth slowed. Which one worries you most, and why?
Who would choose a cheaper plan with adverts? Describe two different types of customer.
Some existing members might switch down to the cheaper plan. Why is that a risk for Netflix, and how could it reduce that risk?
Practice maths, using made-up numbers: suppose the standard plan costs $10 a month. A new ad plan costs $7, and adverts earn Netflix another $2 per ad-plan member each month. One million new members join the ad plan, and 500,000 existing members switch down to it. Is Netflix better or worse off each month, and by how much?
Your recommendation: should Netflix launch the ad plan? Give one risk and explain how you would manage it.
Thinking toolbox
Customer groups: who is leaving, who is sharing, and who has never joined?
Price and volume: a lower price can bring in more customers, but earns less from each one.
Second income: adverts let a company earn from viewers in a new way.
Protect the core: make sure the cheaper plan does not tempt your best customers to pay less.
Take the challenge
Record a pitch of up to 2 minutes giving your answer to question 5, as if you were presenting to Netflix’s leadership team, and ask a parent to enter it in the IFA Case Challenge. Every entry receives short written feedback.
What happened next
On 13 October 2022, Netflix announced a new plan called Basic with Ads. It launched in the United States on 3 November 2022 at $6.99 a month, and in 11 other countries around the same time: Australia, Brazil, Canada, France, Germany, Italy, Japan, Mexico, South Korea, Spain and the United Kingdom.
The plan showed an average of 4 to 5 minutes of adverts per hour, offered video quality up to 720p, did not allow downloads, and some films and series were not available on it because of licensing limits. Netflix described it as offering “a price and plan for every fan”.
Compare this with your plan. How did Netflix limit the risk you identified in question 3?
Answer to question 4: new members add 1,000,000 × $9 = $9 million a month. Members who switch down each bring in $1 less, which costs 500,000 × $1 = $0.5 million. So Netflix would be $8.5 million a month better off in this made-up example.
Sources
Written by International Finance Academy for learning, using public sources checked on 8 November 2026. Numbers in question 4 are made up for practice. IFA is independent and is not affiliated with, or endorsed by, Netflix or any company named.
