Netflix, in an earnings letter released on Tuesday, acknowledged that it lost subscribers in the first quarter of the year. The company’s first loss of subscribers in a decade led its shares to plunge 25 per cent in extended trading.
The streaming platform ended its first quarter with 221.6 million subscribers. Its subscriber base shrunk by 2,00,000 in the January-March period. “Paid net additions were -0.2m compared against our guidance forecast of 2.5m and 4.0m in the same quarter a year ago. The suspension of our service in Russia and winding-down of all Russian paid memberships resulted in a -0.7m impact on paid net adds; excluding this impact, paid net additions totaled +0.5m,” the company said.
It has, furthermore, projected a loss of 2 million subscribers in the next quarter as against the addition of 1.5 million subscribers in the year-ago period.
The Silicon Valley-based streaming platform reported a net income of $1.6 billion in the quarter ended March, as against $1.7 billion in the year-ago period.
Netflix blamed this upset on a mix of factors including the suspension of its service in Russia due to the country’s invasion of Ukraine.
“In the near term though, we’re not growing revenue as fast as we’d like. COVID clouded the picture by significantly increasing our growth in 2020, leading us to believe that most of our slowing growth in 2021 was due to the COVID pull forward. Now, we believe there are four main inter-related factors at work,” the company said.
It also said that the pace of growth is dependent on factors such as the uptake of connected TVs, the adoption of on-demand entertainment and data costs. It expects these factors to improve over time and all broadband households to be potential Netflix customers.
Another factor, it said, was that in addition to the 222 million paying households, Netflix is also shared with an estimated 100 million and more additional households. “Account sharing as a percentage of our paying membership hasn’t changed much over the years, but, coupled with the first factor, means it’s harder to grow membership in many markets - an issue that was obscured by our COVID growth,” it added.
Netflix said that competition with YouTube, Amazon, and Hulu has been robust for the past 15 years. But as traditional entertainment companies realise that streaming is the future, more new streaming services have cropped up.
The company also said that macro factors such as slow economic growth, high inflation, geopolitical tensions such as the Russia-Ukraine war, as well as some continued disruption from COVID-19 had taken a toll too.
Netflix said that it is planning to reaccelerate its viewing and revenue growth by improving all aspects, including the quality of its programming and recommendations. It credited big hits like Bridgerton Season 2 (627 million hours viewed), which is its biggest English language series in its history, Inventing Anna (512 million hours viewed), Tinder Swindler (166 million hours viewed) which is its biggest documentary film, The Adam Project (233 million hours viewed).
It said that it has also recently launched its “double thumbs up” enabling viewers to better express what they truly love versus what they simply like. This will enable Netflix to improve its recommendations.
Netflix also said that its focus is on monetising the 100 million households using another household’s account. Sharing, it acknowledged, helped bring viewers to the fold. “While these have been very popular, they’ve created confusion about when and how Netflix can be shared with other households,” it added.
With non-English hits such as Squid Game, La Casa de Papel Part 4 and All Of Us Are Dead, Netflix expects much of their growth to come from outside the US. “But we saw long ago that great stories can be made anywhere and loved everywhere - dramatically broadening the pool of creators with whom we can work, increasing the variety of our programming and better serving local tastes,” it elaborated.
The company’s shares were down 25 per cent to $262 in after-market trades, following the release of the earnings figures.
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