Netflix Sees First Major Drop In Subscriptions In The First Quarter Since Its Existence
The streaming giant, which has more than 221.6 million subscriptions worldwide, deplores a decrease of 200,000 subscribers due, in particular, to the suspension of its service in Russia. His title fell by 25% on Wall Street.
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By YEET MAGAZINE - With Reuters Updated 0339 GMT (1239 HKT) May 16, 2022
The Covid-19 pandemic and the many lockdowns decided around the world had inflated Netflix subscriptions, with 36 million additional customers in 2020. Today, the war in Ukraine, in particular, is causing a decline for the streaming giant, which expects greater losses in the coming months.
The American company lost 200,000 subscribers worldwide in the first quarter of 2022, compared to the end of 2021. Netflix had planned to gain 2.5 million additional subscribers - and analysts expected even more - but, on the contrary, noticed a decline bringing its total to 221.64 million subscriptions.
Netflix explained that this decrease was mainly related to the difficulty of attracting new subscribers to all regions of the world, but also to the war in Ukraine, which led, as a sanction to Moscow, to the suspension of its service in Russia.
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This suspension and "the gradual decrease in the number of Russian paying subscribers resulted in a net loss of 700,000 subscriptions. Without this impact, [the service would have] had 500,000 additional subscriptions" compared to the last quarter, the Californian company said in a statement.
The main consequence of this decline in subscribers: Netflix's share plunged by more than 30% on the New York Stock Exchange on Wednesday, April 20. The valuation of the streaming group thus founded more than $40 billion ($36.9 billion) on Wall Street, according to the financial data management company FactSet.
Diversify sources of income
In total, Netflix achieved $7.9 billion in turnover from January to March, nearly 10% more than a year ago, thanks in particular to the increase in the number of subscribers over one year (+6.7%) and the increase in its prices. The company generated 1.6 billion in net profits, slightly less than 1.7 billion in the first quarter of 2021.
"The loss of Netflix subscribers is very revealing for a company that has not stopped gaining subscribers for an entire decade," said Ross Benes, an analyst at eMarketer."With subscriptions down, and weak growth prospects, Netflix will have to rely more on secondary branches, such as video games or derivatives to try to increase its revenues," he added.
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After years of high-speed user conquest, and awards in festivals, the company has been jostled since the end of 2019 by major rivals, such as Disney + and Apple TV +. "We know that [the loss of subscribers] is disappointing for our investors, but we are ready to react.(...) It's time to shine and come back in their little papers," said Reed Hastings, co-founder of the company, which is planning a loss of two million additional subscribers from April to June.
Netflix still intends to invest in content production so as not to give up too much ground to this new competition, even though its CFO announced that spending growth will have to slow down.
The company is also looking to diversify its sources of income as shown by the acquisition in September of its first video game studio - a very lucrative sector - Night School Studio, a Californian start-up that created the supernatural thriller Oxenfree. In November, she launched several mobile games for her subscribers, some inspired by the world of the science fiction and horror series Stranger Things.
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The problem of account sharing
But the fact that many households share their account and increased competition "create obstacles to [its] growth. The flight of streaming thanks to Covid had masked reality until recently," Netflix also stressed. The Los Gatos, California company estimates that about 100 million households worldwide watch its service for free using a friend's or other family member's account, including 30 million in the United States and Canada.
Sharing passwords between households "affects [Netflix's] ability to invest in quality series and films for [its] members," said Chengyi Long, the company's Director of Product Innovation. Netflix has thus undertaken to tighten the screw on the side of ID sharing.
"We just need to make sure they pay at least in part for the service they love," said Reed Hastings. In early March, the group launched tests in South American countries to charge its customers for the addition of additional profiles to their account. The platform plans to install this system in its main markets within a year. "We're not trying to prevent people from sharing, but we're going to ask you to pay a little more to do so," summarized Greg Peters, Director of Operations.
In addition, the company wants to continue to take advantage of another aspect of streaming, that of "commitment", i.e. the time spent by users watching movies and series. On this side, it's going "very well," said co-general manager Ted Sarandos, referring to a successful film and series: "We need to have an Adam Project and a Bridgerton every month so that the service is up to expectations all the time. »
A small revolution, Netflix now plans to offer cheaper subscriptions, with advertising, within one or two years. "It is clear that it works for Hulu," notes Reed Hastings. "If you want the ad-free option, it will always be possible. If you prefer to pay less and tolerate ads, there will be an offer for you too. »
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On Tuesday, Netflix said it relied on these measures, and improvements to its service in general, to "accelerate" its revenue growth."People love movies, TV shows and games; high-speed Internet and connected TVs continue to grow around the world with more and more connected devices; and while hundreds of millions of households pay for Netflix, more than half of broadband-connected households do not yet do so, which represents enormous potential for future growth," notes the streaming giant in a positive momentum.
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