Netflix lost fewer subscribers than feared in the last quarter, and reported a significant decline in the number of members overall – but only after warning would it suffer from a more dramatic drop.
Earlier this year, Netflix reported its first decline in membership in more than a decade – a fall that should herald an even deeper chunk of subscriptions now. Butstill the world’s dominant streaming video subscription service, said subscribers fell by 970,000 to 220.67 million in total in April to June, according to the second quarter report on Tuesday.
It’s still the deepest drop in membership the company has ever reported, but it beats Netflix’s April guidance that it would lose 2 million members worldwide. (On average, analysts generally matched their estimate with Netflix’s guidance, according to a Refinitive survey.)
It’s “tough, in some ways, to lose 1 million and call it success,” Netflix co-CEO Reed Hastings said late Tuesday in a recorded discussion of the results. “But really, we are set up very well for next year.”
Nevertheless, Netflix’s outlook for the third quarter fell short of analysts’ expectations, and Netflix predicted that it would have 1 million members versus the consensus estimate for an increase of 1.8 million subscribers.
Investors still welcomed the news, after the Netflix share price has been beaten this year. In the last trade before the market on Wednesday, the Netflix share was up 4% to 209.72 dollars. But the stock has lost two-thirds of its value so far this year, as Netflix’s sudden shrinking membership has undermined Wall Street’s status, just as it has weakened Hollywood’s confidence in streaming as the engine of the TV future.
For years, with Netflix’s unstoppable subscriber growth, almost all of Hollywood’s major media companies pushed billions of dollars into their own streaming operations. These so-called power wars led to a wave of new services, including Apple TV Plus, Disney Plus, HBO Max, Peacock and Paramount Plus – a flood of power options that have complicated how many services you have to use (and often, pay for) to watch your favorite shows and movies online.
Now, feeling the heat of increasing competition to keep your attention and your subscription account, Netflix is following strategies that they have been rejecting for years.
First, the company plans to launch cheaper subscriptions supported by advertising, for one. Although Netflix paved the way for streaming TV, the advertising-only strategy has fallen behind industry standards. As new competitors were launched, they created memberships that give viewers like you more options. Most of Netflix’s rivals now have a multi-layered model, which usually offers cheaper memberships with ads, as well as more expensive subscriptions that are ad-free.
And Netflix is also testing password-sharing fees, with the goal of getting more than 100 million households already watching Netflix but not paying for it directly.
Currently, these experiments are limited to Latin America, but Netflix said it plans to roll out a 2023 account sharing fee structure.
Right now it is testing two schemes. In its first, Netflix charges a fee to add more memberships as official “sub” accounts. Then Netflix said they would try a new method from next month, which will charge you to add more “homes” where you can stream Netflix in addition to a primary home, with a limit on how many additional homes you can add depending on of how much you are already paying for Netflix.
Elsewhere in the report, Netflix said that membership in the United States and Canada, the largest single region (so far), was down 1.3 million for a total of 73.28 million. Subscriptions also fell in Europe, the Middle East and Africa, falling by 770,000 to 72.97 million.
But in the Asia-Pacific region, Netflix added 1.08 million subscribers to reach 34.8 million, and in Latin America, the company added slim 10,000 new members for a total of 39.62 million there.
In total, Netflix reported a profit of $ 1.44 billion, or $ 3.20 per share, compared to $ 1.35 billion, or $ 2.97 per share, a year earlier. Revenue rose 8.6% to $ 7.97 billion.
Analysts expected an average earnings per share of $ 2.75 and $ 8.04 billion in turnover.