Netflix loses 200,000 subscribers in first quarter
After experiencing surging growth during the pandemic, the company that ushered in the streaming revolution finds itself in unfamiliar terrain.
Netflix said Tuesday that it lost 200,000 subscribers in the first quarter, missing its own projections of adding 2.5 million customers and marking the first decline in more than a decade.
The streaming giant estimated it would lose 2 million global subscribers in the current quarter, an extraordinary contraction for a company that transformed the television industry and drew legions of customers with ad-free binge viewing.
Although Netflix remains the biggest player in streaming with 222 million subscribers globally, it faces an inevitable slowdown after a surge in business during the pandemic.
The Los Gatos, Calif., company said its growth was hampered by the proliferation of password sharing and other factors, such as the proliferation of streaming services and the uptake of connected TVs. Geopolitical events, namely Russia’s invasion of Ukraine, also took a toll. Netflix’s move to suspend its service in Russia resulted in a loss of 700,000 subscribers.
Revenue increased 10% to $7.9 billion in the first quarter compared with a year earlier. Net earnings were $1.6 billion, down from $1.7 billion in the first quarter of 2021.
Investors were rattled by the results. After Netflix released its earnings, its shares plunged 26% to $258.95 in after-hours trading.
“I think people deluded themselves into looking at the planet saying there’s over 2 billion households and ‘Oh, my God, these guys can be like Facebook,’ ” said Michael Pachter, a managing director with Wedbush Securities. “Reality set in.”
Password piracy and account sharing is expected to cost streamers and pay TV providers $12.5 billion in 2024, according to Parks Associates.
Netflix faces growing competition from rival streaming services, including HBO Max, Disney+ and Apple TV+, whose film “CODA” recently won an Oscar for best picture, beating out the heavily favored Netflix film “The Power of the Dog.”
The company’s share of demand for streaming original shows in the U.S. has been declining, dropping to 42.4% in the first quarter from 48.1% a year earlier, according to West Hollywood-based Parrot Analytics.
“I know it’s disappointing for investors,” Netflix co-Chief Executive Reed Hastings said in a presentation to investors. “Internally, we’re really geared up and this is like our moment to shine. This is when it all matters, and we’re super focused on achieving those objectives and getting back into our investors’ good graces.”
Among other steps, Hastings said Netflix was considering something it had previously ruled out — a lower-priced service with ads.
“Think of us as quite open to offering even lower prices with advertising as a consumer choice,” Hastings said.
Streaming services aim to entice people to subscribe with compelling TV series and movies. Although Netflix has not disclosed how much it plans to spend on content this year, some analysts have estimated it will be $19 billion. To offset the large spending on content, Netflix raised prices on its subscription plans in the U.S. this year. The cost of a standard plan rose $1.50 to $15.49 a month.
But it’s a delicate balance. In the first quarter, cancellations outpaced sign-ups because of the price increases and the lack of a worldwide hit like the Korean series “Squid Game,” according to digital intelligence platform Similarweb. Sign-ups for Netflix fell 16% in the first quarter compared with a year earlier, Similarweb said. “Squid Game,” released last year, remains Netflix’s most popular show of all time.
Plus: The latest $1-billion deal, and the anime streaming wars.
In a letter to shareholders Tuesday, Netflix blamed some of its challenges on customers sharing their passwords with people who don’t live with them. Under Netflix’s terms, users who don’t live in the same household need to pay for a separate subscription. Some websites allow people to illegally sell Netflix passwords for as little as $1.
Netflix says its platform is shared with more than 100 million additional households outside its 222 million paying subscriber households.
The company recently announced a plan to crack down on password sharing in countries including Chile and Costa Rica.
For an additional $2 or $3, Netflix subscribers in those countries can add up to two users who live outside their household, as part of a new feature the company is testing in certain markets.
But some Netflix users say they will probably quit the streaming service if it penalizes password sharing.
Florida resident Sam Gray says she gets Netflix through her dad’s subscription (he lives in Toronto). Lately, the 22-year-old college student says she spends more time streaming “Star Trek” shows on ad-free Paramount+ than watching Netflix.
“It’s kind of lost its value and they continuously increase the price,” Gray said.
Netflix says it will continue to grow its service by investing in “creative excellence,” pointing to its successful partnership with Shonda Rhimes. The second season of her much-anticipated drama “Bridgerton” drew 627.1 million hours of viewing time in 28 days, making it the most-watched English-language series.
To expand its customer base abroad, Netflix has been heavily investing in local language productions, especially Korean content.
Netflix’s Global Head of TV, Bela Bajaria, discusses the company’s programming strategy and why foreign-language shows are taking off on the platform.
The company also is adding other features to attract and retain viewers, including offering free mobile games for customers. In March, Netflix announced plans to buy Finnish mobile game developer and publisher Next Games.
“There are millions of mobile games, and Netflix games are faring better than most of them because most apps do not get tens of thousands of downloads,” wrote Adam Blacker, vice president of insights at Apptopia.
Although it’s a nascent business, games could help attract younger audiences to the platform and its new shows, analysts said.
“It’s another way to get further share of mind and share of wallet and maybe a slightly younger demographic,” said Seema Shah, a senior director of research and analytics at Similarweb.
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