Netflix lost nearly a million subscribers in the spring amid increased competition and runaway inflation that is squeezing household budgets, increasing the urgency behind the video streaming service’s efforts to launch a less expensive with commercial interruptions.
The April-June contraction of 970,000 accounts, announced as part of Netflix’s second-quarter earnings report on Tuesday, is by far the largest quarterly subscriber loss in the company’s 25-year history.
It could have been much worse, however, given that Netflix management released an April forecast that announced a loss of two million subscribers in the second quarter.
Netflix was likely spared deeper losses by the continued popularity of stranger thingsits sci-fi/horror series that debuted in 2016. After the series’ fourth season was released in late May, Netflix said, viewers watched a total of 1.3 billion hours over the next four weeks – more than any other English- language series in the service’s history.
The less severe loss of subscribers, combined with prospects calling for a return to growth in the July-September period, helped Netflix’s beat stock rise 7% in extended trading after the figures were released.
Netflix co-CEO Reed Hastings didn’t try to sugarcoat things during an earnings conference call on Tuesday. “It’s hard to lose a million subscribers and call it a hit,” he said.
The company’s April-June decline follows a loss of 200,000 subscribers in the first three months of the year, marking the first time Netflix’s total subscriber count has fallen in consecutive quarters. since its transition from offering DVD rentals by mail to video streaming began 15 years ago. from.
The loss of nearly 1.2 million subscribers in the first half of this year also provides a starting contrast to the pandemic-driven growth Netflix enjoyed in the first half of 2020, when its streaming service attracted nearly 26 million subscribers.
Despite the slowdown, Netflix still earned US$1.4 billion, or $3.20 per share, in the quarter, a 6% increase over the same period last year. Revenue increased 9% from the same period last year to nearly $8 billion.
Netflix ended June with 220.7 million subscribers worldwide, far more than any of its newer competitors such as Walt Disney Co. and Apple. And in a sign of hope, Netflix management has predicted that its service will add around 1 million subscribers in the July-September period, signaling that the worst of its crisis may be over.
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Although Netflix’s subscriber losses in the spring were not as severe as investors and management feared, the downturn served as a grim reminder of the challenges now facing the Los Gatos, Calif., company after a decade of unbridled growth.
Netflix’s share price has fallen nearly 70% so far this year, wiping out an estimated $180 billion in shareholder wealth. Since then, other video streaming services have made great strides in attracting viewers, with Apple winning accolades for its award-winning lineup of TV shows and movies, while Disney’s popular lineup of family titles continues to gain traction. ground.
Netflix raises prices, diversifies
At the same time, Netflix has raised prices to help pay for its own original programming, just as the highest rates of inflation in 40 years have led consumers to cut spending on discretionary items such as entertainment.
“Netflix is still the leader in video streaming, but unless it finds more franchises that resonate widely, it will eventually struggle to stay ahead of competitors who are after its crown,” said Insider Intelligence analyst Ross Benes.
Sensing potential trouble was brewing, Netflix began branching out last year by adding free-to-play video games to its streaming service.
But that obviously hasn’t been enough to propel subscriber growth, prompting Netflix to announce in April that it would crack down on the widespread sharing of subscriber passwords and take another once despised step by offering a less cost of its service which will include commercial interruptions. .
Without providing further details, Netflix said on Tuesday that the ad-supported plan and crackdown on password sharing will begin early next year. The company did not specify the cost of the streaming option with ads.
Netflix took a step closer to implementing the ad-supported option last week when it announced it would team up with Microsoft to deliver the ads.
“We have headwinds right now and we’re riding through them,” Netflix co-CEO Ted Sarandos said at the end of Tuesday’s conference call.
“We’ve seen entertainment formats come and go, we’ve seen entertainment business models come and go, and we’ve managed to grow through all of them, despite all kinds of economic conditions and at all levels of competition.”