Netflix is exploring changes to its service that it has long opposed, such as limiting password sharing and introducing a low-cost subscription backed by advertising, as a result of an unexpectedly significant loss in members.
The next improvements, which were revealed late Tuesday, are intended to help Netflix recapture the momentum it has lost in the last year. Pandemic-driven lockdowns that fueled binge-watching have lifted, while deep-pocketed competitors like Apple and Walt Disney have begun to nibble away at the company’s massive fanbase with their own streaming services.
During the January-March quarter, Netflix’s member base shrank by 200,000, the first decline since the streaming service became available in much of the globe outside of China six years ago. The decline was attributed in part to Netflix’s decision to leave from Russia in protest of the war in Ukraine, which resulted in a 700,000 subscriber loss. In the current April-June quarter, Netflix expects to lose another 2 million customers.
Netflix’s stockholders have been worried by the decline, which comes after a year of gradually slower growth. Netflix’s stock plummeted by more than 25% in extended trading after the company’s poor performance was revealed. If the company’s decline continues into Wednesday’s normal trading day, Netflix’s stock would have lost more than half of its value this year, wiping out approximately $150 billion in shareholder wealth in less than four months.
According to Aptus Capital Advisors analyst David Wagner, Netflix is now facing a significant challenge. Wagner said in a research note on Tuesday, “They are in no-land.” man’s
According to the Los Gatos, California-based firm, roughly 100 million homes across the world are watching its service for free by utilizing the account of a friend or family member, with 30 million in the United States and Canada. “ “There are currently over 100 million households who choose to watch Netflix,” Hastings remarked. “We simply have to get compensated for them in some way.”
Netflix has announced that a trial program it has been operating in three Latin American countries — Chile, Costa Rica, and Peru — will be expanded to encourage more individuals to pay for their own accounts. Subscribers can extend service to another home for a subsidized fee in certain places. Netflix plans in Costa Rica, for example, cost $9 to $15 per month, but members may openly share their subscription with another family for $3.
Netflix did not provide any more details on how or how much a lower ad-supported subscription tier would function or cost. Hulu, for example, has long had an ad-supported tier.
While Netflix plainly feels that these adjustments would help it grow its existing 221.6 million global members, they also run the danger of alienating users and causing them to abandon their subscriptions.
Netflix faced a customer backlash in 2011 when it announced intentions to charge for its then-nascent streaming service, which had previously been packaged for free with its conventional DVD-by-mail service prior to its worldwide growth. Netflix lost 800,000 customers in the months after the shift, forcing Hastings to apologize for botching the spin-implementation. off’s
Tuesday’s news was a harsh reality check for a corporation that had been riding high two years ago when millions of people cooped up at home were starving for entertainment — a need Netflix was pleased to fill. Netflix attracted 36 million new customers in 2020, the greatest yearly increase since the company launched its video streaming service in 2007.
Netflix CEO Reed Hastings, on the other hand, now feels that the company’s management was dazzled by the huge profits. In a video conference on Tuesday, he added, “COVID produced a lot of noise about how to understand the issue.”
Last year, Netflix took a step in a new direction when it included video games to its service for no extra price in a bid to get consumers to join.
Inflation has risen in recent months, putting pressure on household budgets and prompting more people to cut back on discretionary spending. Despite this, Netflix recently hiked its costs in the United States, where it has the most household penetration — and where it has had the most difficulty attracting new users.
Netflix lost 640,000 members in the United States and Canada in the most recent quarter, prompting management to state that overseas markets will account for the majority of future growth. Netflix has 74.6 million customers in the United States and Canada at the end of March.