Netflix lost nearly 1 million subscribers and breathes a sigh of relief

LOS ANGELES (NYTIMES, REUTERS) – Netflix on Tuesday (July 19) averted its own worst-case scenario of subscriber losses, posting a nearly 1 million drop from April through June, and predicted it would return to customer growth during the third quarter.

When Netflix announced that it lost 200,000 subscribers in the first quarter and expected to lose many more in the second, it suggested to many in Hollywood and on Wall Street that the halcyon days of endless growth in the streaming business had come to an end.

The company still had a rough three months, but it did see its revenue grow 9 per cent to US$7.9 billion (S$11 billion), a number that would have been higher had the value of the dollar not pushed down the value of currencies around the globe. And it told investors it could add back 1 million subscribers in the coming quarter. Netflix now has about 220.7 million subscribers worldwide.

“First and foremost, we need to continue to improve all aspects of Netflix,” the company wrote in its shareholder letter, adding that its focus would remain on its core service of providing streaming content to subscribers while not worrying about other potential revenue streams like its primary competitors do.

“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,” the company added. “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 has spent the past three months adjusting its business to better meet the challenges it expects to face the rest of the year. The company laid off about 450 employees.

In April, it announced it would introduce a less expensive subscription tier that will feature advertising – reversing its long-held stance to never have commercials on its service. Netflix intends to start its lower-cost advertising tier in the early part of 2023 in a “handful of markets where advertising spend is significant,” a development analysts are cautiously optimistic about.

“Beyond additional subscriptions, ads will also provide an upside to Netflix in the form of a new revenue stream from brands that are eager to reach the platform’s addressable audience,” said Mike Proulx, a vice president at Forrester. “But scaling its ad business will take time.”

And Netflix said it would begin to crack down more forcefully on password sharing in order to effectively monetize the 100 million users Netflix said use its service without paying for it. On Tuesday, Netflix said it launched two approaches to this in Latin America to learn which is more effective. One allows customers to “add extra member,” and the other allows users to “add a home” for an extra US$3 a month.

“Not only were losses not as bad, but expecting growth in Q3, even if it’s modest growth, is probably pretty encouraging to people,” said Richard Greenfield, managing director at LightShed Ventures, adding that the company’s pronouncement that it was expecting substantial free-cash-flow growth in 2023 was the most significant news of the quarter.

“They’re basically saying that while everyone else in the industry is losing billions of dollars, not only are they making money in 2022 they’re going to make a lot of money in 2023 and beyond.”

In addition to its business issues, Netflix received fewer Emmy nominations this month than its primary rival, HBO, despite featuring more programming than the cable network and its streaming offshoot, HBO Max. HBO picked up 140 nominations to Netflix’s 105, a metric that emphasizes the difficulty of continually producing quality, buzzworthy entertainment.

Wall Street soured on the streaming giant after its first quarter report, with shares of Netflix down 46 per cent since April, and down close to 70 per cent since the beginning of the year.