With Netflix Inc.'s growth slipping, analysts questioned whether a lower-priced, ad-supported subscription tier would improve the company's prospects in Europe.

Netflix reported sequential membership losses in most of its markets during the first quarter, including the U.S. and Europe. The company cast blame for the declines on higher competition, the war in Ukraine, and rising living costs. CEO Reed Hastings indicated a willingness to shed his long-held opposition to an ad-supported membership tier in hopes of reinvigorating growth by offering lower base prices.

European paid memberships declined by about 300,000 in the first quarter, to 73.7 million. The size of the company's EMEA base now trails its domestic market by less than a million.

Revenue per subscriber has not kept up with the U.S. market, however. In the U.S., average monthly revenue per membership/user grew about 30% from 2018 through 2021, to $14.56. In the EMEA region, meanwhile, it gained about 11% over the same period, to $11.63.

In the first quarter of 2022, European ARPU actually declined slightly, to $11.56 from $11.63. That left the region's ARPU unchanged from a year earlier.

Netflix could pick up more members in Eastern Europe if it rolled out a more affordable membership tier there, said Kagan analyst Michail Chandakas. Western European countries Germany, France and the U.K. represent nearly half of Netflix's European market, according to Kagan, a media research group within S&P Global Market Intelligence.

"I think Netflix will start offering ad-tier plans in markets with low ARPUs, so mainly Eastern Europe and Greece," Chandakas said. The company has adjusted its pricing in Europe previously, lowering its basic plan pricing in Poland in 2020, for example.

"On their most loyal users, Netflix can keep raising prices. But there is a segment of the market that just cannot afford it," said Craig Huber, founder of media stocks research firm Huber Research. "This advertising hybrid model would open it up to those households."

In Europe, most streaming services are either planning or already provide cheaper ad plans to customers.

Still, there are risks to expanding by lowering prices.

"There is a correlation between ad rates and GDP, and advertisers aren't going to pay a lot to attract Albanian customers," said Michael Pachter, a managing director at Wedbush Securities.

Pachter sees the U.S. as the most fertile market for an ad-supported Netflix subscription tier, but the analyst cautioned that such a move could undercut the company's domestic revenue.

"If Netflix cuts prices too much and doesn't generate enough ad revenue, they risk losing money on paying customers who convert," he said.

Netflix declined to comment further on executives' consideration of ad-supported subscriptions. In the company's recent earnings call, CEO Hastings compared the option to similar offerings from competitor Hulu.

"If you still want the ad-free option, you'll be able to have that as a consumer. And if you would rather pay a lower price and you're ad-tolerant ... we're going to cater to you also," Hastings said.