Netflix Inc (NASDAQ:NFLX) saw its shares drop by over 8.5% on Thursday and continued lower in after-market trading, unnerved by a report saying the streaming giant's new advertising-funded service has got off to a poor start.
Audiences for the service have fallen short of the numbers that Netflix guaranteed advertisers, according to a report from Digiday, a specialist publication that covers the digital media market.
Quoting five advertising agency executives, the report said audiences had only been around 80% of the numbers promised to advertisers in some cases and that, as a result, Netflix was offering them refunds on adverts yet to run.
READ: Netflix boss Sarandos says sports TV rights are too expensive
The article said that Netflix had been selling ads on a so-called 'pay on delivery' basis: in other words, advertisers only pay the company for viewers who actually watch their adverts.
It also said that Netflix has been charging more, per numbers viewing adverts on its platform, than rival Disney+ - which briefly overtook Netflix earlier this year as the world's biggest streaming platform.
The company has been charging $65 for every 1,000 viewer impressions while Disney+ has been charging $50 for the same number. Digiday said that Netflix has since cut its price to $55.
Netflix launched its new ad-funded service last month - seven months after first announcing it was thinking about the idea - in a bid to bolster its revenues. The ad-supported service was launched in the US with a monthly subscription fee of $6.99.
Digiday said that, while Netflix had struggled to meet its existing promises to advertisers, it was still seeking for ad deals for next year, Sky News added.
The decline in Netflix shares on Thursday of 8.6% to $290.41 means that they have fallen by more than 50% so far this year, although they have rallied by some 60% since hitting the year's low in early May.
Contact the author at jon.hopkins@proactiveinvestors.com