20 APR 2022

New episode of the streaming wars: why Netflix is losing subscribers?

Netflix reported a loss of 200.000 subscribers during the first quarter of 2022, which represents its first decline in paid users in more than a decade.

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Netflix reported a loss of 200.000 subscribers during the first quarter of 2022, which represents its first decline in paid users in more than a decade. In January, the streamer reported it had 221.84 million subscribers at the end of last year, but in its last financial report, it disclosed 221.64 million subscribers. The streaming giant lost subscribers in nearly every region except for the Asia Pacific market, where it saw a net add of over 1 million subscribers. In the United States/Canada region, Netflix dropped around 640.000 during the period and saw a 300.000 subscriber loss in Europe, the Middle East, and Africa, and 350.000 loss in Latin America. The losses are expected to continue into the second quarter when Netflix predicts it will lose an additional 2 million subscribers.

“Our revenue growth has slowed considerably as our results and forecast below show. Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally. However, our relatively high household penetration - when including the large number of households sharing accounts - combined with competition, is creating revenue growth headwinds,”  the company explained to its shareholders.

Specifically, the company assured that the suspension of its service in Russia and the winding-down of all Russian paid memberships resulted in a loss of 700.000 subscribers. Excluding that impact, the streaming platform said it would have seen 500.000 net additions during the most recent quarter. Netflix also cited growing competition from recent streaming launches by traditional entertainment companies, as well as rampant password sharing for the recent stall in paid subscriptions. According to the streamer, in addition to its almost 222 million paying households, access is being shared with more than 100 million additional households through account sharing.

Netflix stock closed Tuesday at US$348.42 per share. In after-hours trading, the stock fell more than 22% following Netflix’s first-quarter subscriber loss reveal and projections for a deeper loss in the second one“Our plan is to reaccelerate our viewing and revenue growth by continuing to improve all aspects of Netflix - in particular, the quality of our programming and recommendations, which is what our members value most,”  the company said.

●  AN AVOD OPTION?

Regarding the future, after years of resisting advertisements on its streaming service, Netflix is apparently now open to offering lower-priced tiers with ads, its co-CEO Reed Hastings confirmed. The option, however, will likely not be available on the service for a year or two.

“Those who have followed Netflix know that I have been against the complexity of advertising and a big fan of the simplicity of subscription. But as much as I am a fan of that, I am a bigger fan of consumer choice, and allowing consumers who would like to have a lower price and are advertising-tolerant to get what they want makes a lot of sense,”  Hastings said.

●  WHAT IS NETFLIX REAL COMPETITION?

Netflix cited competition as one of the main causes of its slowdown, and new Parrot Analytics data reveals the streaming giant’s primary foes in the race for entertainment supremacy are its legacy media opposition, especially Disney and the newly-formed Warner Bros. Discovery.

Netflix’s demand share of streaming originals once again hit new lows in Q1 2022, sitting at 45.2% globally (down from 45.4% in Q4 2021) and 42.4% in the United States (down from 43.6% in Q4 2021). Meanwhile HBO Max, Paramount+, and Disney+ — all SVODs backed by traditional media conglomerates — saw significant gains in the most recent quarter.

Global demand for original content from all of Netflix’s competitors grew 80.8% between Q1 2020 and Q1 2022, more than triple the 25.5% growth for Netflix originals over the same time.

Netflix’s modest global demand growth of late has tracked remarkably closely with its slowing subscriber growth over the same time (up 21.3% worldwide from Q1 2020 to Q4 2021), showcasing the pivotal link between the demand for original content and SVOD subscriber growth.

“To be clear: Netflix is still the single most dominant player in the streaming industry, especially in demand for original content, a key leading indicator of subscriber growth. But as several nearly century-old firms erode the incumbent’s market share, Netflix is reaching a point where it needs to focus more on subscriber retention, especially in North America, while it's legacy media-backed competitors Disney+ and HBO Max continue focusing on subscriber growth in key international territories,”  Parrot Analytics noted.