Netflix just published its first-quarter revenue report, outlining the number of lost subscribers and profits for the quarter. The report shows that Netflix lost 200,000 subscribers globally compared to Q4, 2021, and it’s forecasting even more losses in the future. The streaming giant is expecting to lose up to 2 million subscribers in the second quarter, and it’s now exploring other ways to make up for the lost revenue.
Netflix shared that “Our revenue growth has slowed considerably” and that “our relatively high household penetration – when including the large number of households sharing accounts – combined with competition, is creating revenue growth headwinds”, in a letter to the shareholders.
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Netflix acknowledged that it’s struggling and that some of that has to do with users sharing their accounts with other people in the same household. Password sharing costs Netflix a lot of money as the users sharing accounts do not pay Netflix directly to take advantage of the benefits and content. The company estimates that 100 million users share their accounts, 30 million of which are located in the US and Canada alone.
“In addition to our 222m paying households, we estimate that Netflix is being shared with over 100m additional households, including over 30m in the UCAN region. Account sharing as a percentage of our paying membership hasn’t changed much over the years, but, coupled with the first factor, it means it’s harder to grow membership in many markets – an issue that was obscured by our COVID growth.”
There are two main contributing factors to Netflix losing subscribers. The first has to do with high inflation and the recent price increases that affected millions of users globally.
The continuous price hike led to Netflix users canceling their subscriptions
The streaming giant announced that its subscription tiers would go up by $2 across all of the different plans, which made a lot of subscribers unhappy as the price for the service has steadily risen in the past few years. The service used to cost $9.99 in October 2015 (for standard HD quality and two simultaneous screens). The same subscription plan now costs $15.49 as of January 2022. The continuous price hike led to Netflix users canceling their subscriptions.
The recent global events also had a massive impact on Netflix’s revenue and subscriber count, as it lost around 700,000 Russian paying subscribers. Netflix suspended its service in Russia after sanctions were imposed on the country for invading Ukraine. We have a list of tech companies that have exited Russia since the war began in February.
What’s Netflix’s Plan B?
Ad supported tier
It’s not unusual, and many people we know share accounts and split the monthly cost to save money and enjoy the content. The company CEO, Reed Hastings, shared in Tuesday’s earnings call that Netflix is now open to offering even lower prices with advertising, as a consumer choice.”
Hastings shared that he was always against the “complexity of advertising” and preferred the “simplicity of subscription.” The CEO shared that while offering an ad-supported tier goes against Netflix’s vision, it wants to provide customers with a choice and make it easier to access the massive library of movies and tv shows.
The Netflix CFO also shared that “never say never” to an ad-supported plan, which now seems to be coming soon. With other competing platforms, such as Disney, working on an ad-supported tier, it’s inevitable for Netflix to join with a more affordable alternative to try to compete with other streaming services in the same segment.
Netflix expanded its market into mobile gaming, and the company is trying to form new partnerships with large companies. The company is also showing additional interest in creating animated series and movies, many of which are based on popular topics and games, in an attempt to lure the younger audience into joining the platform.
Netflix recently announced a partnership with Exploding Kittens, a popular card game that will involve the two companies working together on a new mobile game, and a special animated series.
Cutting down on password sharing
Netflix rolled out a feature that allows users to add second members to their accounts for an additional $2-$3 for each member. The trial is currently only available in Peru, Chile, and Costa Rica, and its primary purpose is to test whether people are willing to pay extra for something that was previously free, and seemingly allowed. If the trial is successful, many North Americans and Europeans could soon be pressured to pay even more for their Netflix subscription if the streaming platform finds that more than two people share the same account to consume content.
Cracking down on password sharing was a long time coming, and it remains to be seen how people will react to paying more, while the streaming service continues to increase its prices year over year.
Netflix remains the top streaming platform, and while Disney Plus is growing rapidly, it has to make several changes to its business model to continue growing and expanding. What are your thoughts about the new developments and latest news? Let us know in the comments below!