Netflix Continues Subscriber Losses but Beats Expectations

Netflix Continues Subscriber Losses but Beats Expectations
A Netflix logo on a TV screen, ahead of a Swiss vote on a referendum called "Lex Netflix," in a photo illustration taken on May 9, 2022. (Denis Balibouse/Reuters)
Katabella Roberts

Netflix’s second-quarter financial results on July 19 revealed a continued loss in subscribers, albeit less than anticipated by both the streaming giant and investors.

Netflix lost 970,000 subscribers (pdf) in the second quarter amid increased competition from other streaming services, account sharing, sluggish economic growth and other factors such as the impacts of Russia’s war in Ukraine, the company said.

However, that figure was still better than the 2 million subscriber loss that had originally been forecast in an April shareholder letter, prompting Netflix’s stock to spike more than 10 percent in after-hours trading Tuesday.

Netflix was also hopeful about subscriptions in the future, saying it expects to add another million paid subscribers in the third quarter, just slightly less than Wall Street expectations.

The Los Gatos, California-based company currently has 220.67 million subscribers worldwide.

The latest results come after Netflix in April revealed a decline in subscribers for the first time in more than 10 years, telling investors that it expected more losses to come, prompting concerns among some.

“We’ve now had more time to understand these issues, as well as how best to address them,” Netflix said of the factors contributing to a loss in subscribers on Tuesday.

Matt Duffer and Ross Duffer attend Netflix's "Stranger Things" ATAS Official Screening at Raleigh Studios Hollywood in Los Angeles, California, on May 27, 2022. (Emma McIntyre/Getty Images for Netflix)
Matt Duffer and Ross Duffer attend Netflix's "Stranger Things" ATAS Official Screening at Raleigh Studios Hollywood in Los Angeles, California, on May 27, 2022. (Emma McIntyre/Getty Images for Netflix)

‘Stranger Things’

“First and foremost, we need to continue to improve all aspects of Netflix ... Also as a pure play streaming business, we’re unencumbered by legacy revenue streams,” Netflix said. “This freedom means we can offer big movies direct-to-Netflix, without the need for extended or exclusive theatrical windows, and let members binge watch TV if they want, without having to wait for a new episode to drop each week. This focus on choice and control for members influences all aspects of our strategy, creating what we believe to be a significant long-term business advantage.”

Netflix also noted that the release of season four of the popular show “Stranger Things” had helped keep the subscriber count from falling, adding that it “returned to tremendous fan reception and was a smash hit by all measures.”

The release of the fourth season of the show at the end of May generated 1.3 billion hours viewed within the first four weeks, making it Netflix’s biggest season of English TV ever.

“Season four of ‘Stranger Things’ also showcased the effectiveness of our marketing strategy in driving conversation around our titles,” Netflix said. “When we deliver shows and movies that members are talking about in large numbers, we can influence pop culture, build passion for Netflix, and create an experience that is differentiated and difficult to replicate.”

Despite continued latest subscriber losses, the streaming giant plans to forge ahead with improvements to monetization, noting that it is still in the early stages of working to monetize the more than 100 million households that are currently enjoying Netflix.

Ad-Supported Tier

It also plans to add an ad-supported tier early next year as well as features designed to clamp down on account sharing across households.

“In the early days of streaming, we kept our pricing very simple with just one plan level,” the company said. “In 2014, we introduced three price tiers to better segment demand. Going forward, we will focus on better monetizing usage through both continued optimization of our pricing and tiering structures as well as the addition of a new, lower-priced ad-supported tier.”

The lower-priced tier will allow consumers to watch Netflix with advertisements, and will “complement our existing plans, which will remain ad-free” the streamer said.

Netflix announced on July 13 that it would be partnering with Microsoft as it adds the ad-supported plan for users.

The streaming giant also aims to roll out plans to ensure users pay to share accounts with those living outside of their households next year, noting that its goal is “to find an easy-to-use paid sharing offering that we believe works for our members and our business.”

Netflix began testing some of those paid-sharing features in Latin America earlier this year.

“We’re encouraged by our early learnings and ability to convert consumers to paid sharing in Latin America,” the company said.

Elsewhere, Netflix’s earnings report on Tuesday stated that the company generated nearly $8 billion in revenue, driven by a 6 percent and 2 percent increase in average paid memberships and average revenue per membership, respectively, and marking an 8.6 percent increase over the same period 12 months ago.

“Our challenge and opportunity is to accelerate our revenue and membership growth by continuing to improve our product, content, and marketing as we’ve done for the last 25 years, and to better monetize our big audience,” Netflix said in the report.