Netflix lost fewer subscribers than expected in its latest quarter, reported a significant drop in total membership – but after warning it would be a more dramatic decline.
Earlier this year, Netflix reported its first drop in membership numbers in more than a decade — which should now signal an even deeper drop in subscriptions. But Netflixstill the world’s dominant streaming-video subscription service, said on Tuesday that subscribers fell by just 970,000 to 220.67 million in the April-June period, according to its second-quarter report.
It’s still the deepest drop in membership the company has ever reported, but it’s winning Netflix‘s April management will lose 2 million members worldwide. (Analysts on average adjusted their estimates to Netflix’s guidance, according to a survey by Refinitiv.)
“In some ways, it’s hard to lose 1 million and call that a success,” Netflix Chief Executive Reed Hastings said Tuesday night in a taped discussion of the results. “But we’re really set up very well for next year.”
Still, Netflix’s forecast for the third quarter fell short of analysts’ expectations, with Netflix forecasting a gain of 1 million subscribers versus the consensus estimate for 1.8 million subscriber growth.
Investors similarly welcomed the news after Netflix’s share price plunged this year. Shares of Netflix rose 4% to $209.72 in premarket trading on Wednesday. But the stock has lost two-thirds of its value so far this year as Netflix’s suddenly declining membership undermines Hollywood’s faith in streaming as the engine of television’s future, as well as its status as a Wall Street darling.
Years of Netflix’s steady subscriber growth has forced nearly all of Hollywood’s major media companies to spend billions of dollars on their streaming operations. These are so-called stream wars led to a wave of new services including Apple TV Plus, Disney Plus, HBO Max, Peacock and Paramount Plus – a deluge of streaming options that make it difficult to decide how many services you should use (and often pay for) to watch your favorite shows and movies online.
Now feeling the heat of the intensifying competition to keep your attention and subscriptions, Netflix is implementing strategies it has rejected for years.
First, the company plans to launch cheaper ad-supported subscriptions. While Netflix has blazed a trail for streaming television, its ad-only strategy has fallen short of industry standards. As new competitors launch, they build memberships that give viewers like you more options. Most of Netflix’s competitors now have a tiered model, usually offering cheaper memberships with ads, as well as more expensive subscriptions without ads.
Netflix is also testing password-sharing fees, aiming to reach the more than 100 million households that already watch Netflix but don’t pay directly for it.
For now, these experiences are limited to Latin America, but Netflix said it plans to introduce a fee structure for account sharing in 2023.
It is currently testing two schemes. In the first, Netflix charges a fee to add additional memberships, such as official “sub” accounts. Then, Netflix said it would be testing the new method starting next month. This method will require you to add more “homes” where you can stream Netflix in addition to one primary residence. You’re already paying too much for Netflix.
Elsewhere in its report, Netflix said membership in its largest single region, the US and Canada, was down 1.3 million (currently) to a total of 73.28 million. Subscriptions in Europe, the Middle East and Africa also fell by 770 thousand to 72.97 million.
But in the Asia Pacific region, Netflix added 1.08 million subscribers to 34.8 million, while in Latin America the company added 10,000 new members there to reach a total of 39.62 million.
Overall, Netflix reported net profit of $1.44 billion, or $3.20 per share, in the latest period, compared with $1.35 billion, or $2.97 per share, a year earlier. Revenue rose 8.6% to $7.97 billion.
Analysts, on average, expect earnings of $2.75 per share and revenue of $8.04 billion.
