Netflix lost fewer subscribers than feared last quarter and reported a significant drop in members overall — but only after a warning would it suffer a more dramatic drop.
Earlier this year, Netflix reported its first membership drop in more than a decade — a drop that should herald an even deeper plunge in subscriptions now. But Netflix, still the world’s dominant streaming video subscription service, said subscribers fell by 970,000 to a total of 220.67 million from April to June, according to its second-quarter report Tuesday.
That’s still the deepest membership drop the company has ever reported, but it beat Netflix’s April forecast that it would lose 2 million members worldwide. (According to a Refinitiv poll, analysts on average essentially aligned their estimate with Netflix’s forecast.)
It’s “in a way difficult to lose 1 million and call it a success,” Netflix co-CEO Reed Hastings said late Tuesday in a taped discussion of the results. “But really, we are very well positioned for next year.”
Still, Netflix’s third-quarter outlook fell short of analysts’ expectations, as Netflix forecast it would add 1 million members versus the consensus estimate of an increase of 1.8 million subscribers.
Investors nonetheless welcomed the news after Netflix’s stock price took a hit this year. In the last premarket trade on Wednesday, Netflix shares were up 4% to $209.72. But the stock has lost two-thirds of its value so far this year as Netflix’s suddenly declining membership has eroded its status as a Wall Street darling, just as it has shaken Hollywood’s faith in streaming as the engine of television’s future.
Netflix’s years of unabated subscriber growth has prompted almost every major Hollywood media company to pour billions of dollars into their own streaming businesses. These so-called streaming wars spawned a wave of new services, including Apple TV Plus, Disney Plus, HBO Max, Peacock, and Paramount Plus — a deluge of streaming options that has complicated how many services you need to use (and often pay) to watch your favorite shows and movies online.
Now, feeling the heat of intensifying competition to keep your attention and your subscription account, Netflix is pursuing strategies it had discarded for years.
For one, the company plans to launch cheaper subscription plans that will be supported by advertising. Although Netflix paved the way for streaming TV, its all-ad-free strategy has fallen behind industry standards. As new competitors entered the market, they set up memberships that give viewers like you more options. Now, most of Netflix’s competitors have a tiered model, typically offering cheaper memberships with ads as well as pricier subscriptions without ads.
And Netflix is also testing password-sharing fees, aiming to reach more than 100 million households who already watch Netflix but aren’t paying directly for it.
For now, those experiments are limited to Latin America, but Netflix said it plans to introduce an account-sharing fee structure in 2023.
At the moment it is testing two systems. In the first case, Netflix charges a fee to add additional memberships as official “sub” accounts. Next, Netflix said it would try a new method starting next month that would require you to add additional “houses” where you can stream Netflix in addition to a primary residence, with a cap on how many additional houses you can add, ever after how much you already pay for Netflix.
Elsewhere in its report, Netflix said membership in the US and Canada, its largest single region (for now), fell by 1.3 million to a total of 73.28 million. Subscriptions also fell by 770,000 to 72.97 million in Europe, the Middle East and Africa.
But in the Asia Pacific region, Netflix added 1.08 million subscribers to 34.8 million, and in Latin America the company added nearly 10,000 new members for a total of 39.62 million.
Overall, Netflix reported earnings of $1.44 billion, or $3.20 per share, for the most recent period, compared to $1.35 billion, or $2.97 per share, last year. Revenue rose 8.6% to $7.97 billion.
Analysts, on average, were expecting earnings per share of $2.75 and revenue of $8.04 billion.