Streaming platform Netflix reported a loss in its subscriber base for the first time since 2011. The Silicon-based company reported $1.6 billion as net revenue for the March quarter in 2022 against $1.7 billion for the same quarter last year.
The subscriber loss and declining earnings caused the share price of Netflix to plummet by 21% as Wall Street reacted negatively to a loss of around 200,000 subscribers in the first quarter of this fiscal and the company predicted a similar decline in subscribers in the second quarter.
Netflix attributed the headwinds for revenue growth to the growing competition, high household penetration, and the raising of subscription fees in the U.S. and Canada.
Boom during Covid
Netflix subscribers and viewership boomed during the pandemic, and 2020 was a good year for them. The irony was that Covid boost to streaming viewership obscured the accurate picture. Viewers were sequestered in their homes and binged watched hits like Squid Games, All of Us Are Dead, and documentaries such as ‘Tiger King’. The competition for subscribers after the pandemic was HBO Max, Disney+, and others.
Reasons for degrowth
The main reason for Netflix losing subscribers in 2022, according to the company, has been
- Password sharing by subscribers with others
- Increase competition from new streaming platforms
- Impact of connected T.V. and other technology
- Factors like Geopolitical conflict and Inflation
Netflix has started testing ways to crack down on sharing of passwords by subscribers. It is estimated that in addition to the 222 million households who are subscribers, passwords are shared with another 100 million households. Though the account sharing percentage has not changed much over the past few years, coupled with other factors, it is more challenging to grow memberships.
Out of the 100 million shared households, 30 million are alone in Canada and U.S. The sharing of passwords helped Netflix share fuel growth as more people became aware of Netflix and used them. However, beyond a point, it did not help, and in the process, Netflix lost subscribers.
The Russia Ukraine war also impacted its business resulting in Netflix losing subscribers. The sanctions on Russia forced Netflix to suspend its services in Russia, resulting in a loss of 700,000 paid subscribers in the first quarter of this year. Last year Netflix added 1.5 million subscribers before losing 200,000 this year.
Way forward
Netflix is presently testing its new paid sharing services in Latin America. It focuses on ways to monetize households who are freeloaders. The company believes its growth will come from countries outside the U.S. and Canada. Though new streaming services are coming up, Netflix expects growth to improve over time.
The company plans to improve in all aspects, including program quality and recommendations to accelerate viewership and revenue growth. It has launched a “double thumbs up” feature to enable its viewers to express what they would love to see and help improve the recommendations.
