Netflix’s share price has tumbled after it announced a net loss of 200,000 subscribers globally, and expects to lose a further two million over the next three months. Its share price slid more than 35% in early trading on April 20, wiping around $55bn (£42bn) off its value.
The headline failure for Netflix is a reduction in subscribers for the first time in a decade. Wall Street analysts had been expecting it to announce growth of about 2.5 million new customers, and were stunned when the company instead confirmed more had cancelled than joined.
Source: https://play.google.com
Around the world, Netflix has 222 million subscribers. In its biggest markets, however, it has an appreciable portion of all households: in the US and Canada, 75m out of a total 142m households have a subscription to Netflix.
Netflix has been increasing its monthly fees sharply around the world, with some UK subscribers now paying a third more than they were less than two years ago for the same service. But the company says it has been happy with the results, saying the rises “remain significantly revenue positive” – and thinks it still has “among the best retention in the industry”. Netflix also points out that, were it not for the war in Ukraine, it would actually have gained subscribers: it suspended services in Russia, losing 700,000 accounts in the process.
However, Netflix is exploring the possibility of a soft price cut, in the form of an ad-supported tier. A cheaper subscription funded by adverts could help expand Netflix into households and regions that had previously been unable to afford the service at full price.
Netflix estimates 100m households globally access its services through password sharing. For years, it has tacitly allowed the practice, which functions as an effective discount.
But now, it has started experimenting with stricter controls to try to turn some of those additional households into customers in their own right.
In trials in some South American countries, Netflix has simply started to ask subscribers to pay a small additional fee, about $3 a month, if they share their service with people outside their household.
The deeper question for the company is whether it needs to change its actual product, rather than simply fiddling with price points and subscription tiers. Unlike many of its competitors, Netflix has focused almost entirely on a relatively narrow slice of original and licensed film and TV.
Competitors such as Amazon, Apple and Disney have looked to include sports, news and light entertainment in their wider packages. A 2018 report suggested Netflix was exploring news programming, but the company instead appears to have gone down other routes – launching a free gaming service for subscribers. Netflix’s troubles are a warning sign for its peers and competitors. After watching millions of customers abandon pay TV for streaming, US entertainment giants merged and restructured to compete with Netflix. Investors encouraged this strategic shift, boosting shares of companies like Walt Disney Co that demonstrated a commitment to streaming.
Netflix remains well ahead of most of its competitors outside the US, and is the largest streaming service in the world. The company believes it can execute its way out of the current predicament by luring new customers with better programmes and finding more ways to charge its existing user base. The company still expects to add customers this year, and will have a stronger slate of new shows in the back half of the year. Whether Wall Street believes that is up for debate.
References:
Why is Netflix losing so many subscribers and what can it do to about it?, Alex Hern, UK Technology Editor, The Guardian, 20 Apr 2022 (https://www.theguardian.com)
Netflix breaks its own rules as subscriber losses batter shares, Lucas Shaw & Subrat Patnaik,
Bloomberg, TheEdge CEO Morning Brief, 21 April 2022
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