Global streaming giant Netflix Inc. on Tuesday reported losing subscribers for the first time in more than a decade and predicted more contraction in the second quarter, a rare miss for a company that has been a reliable growth engine for investors.
Netflix lost 200,000 subscribers in its first quarter, falling well short of its modest predictions that it would add 2.5 million subscribers. Its decision in early March to suspend service in Russia after it invaded Ukraine resulted in the loss of 700,000 members. The company’s stock plunged 20 per cent in after-market trading.
Netflix, which currently has 221.6 million subscribers, last reported a loss in customers in October 2011. Netflix offered a gloomy prediction for the spring quarter, forecasting it would lose two million subscribers, despite the return of such hotly anticipated series as Stranger Things and Ozark and the debut of the film The Grey Man, starring Chris Evans and Ryan Gosling.
Revenue rose 10 per cent to $7.87 billion but investor focus stayed on the shrinking customer base.
“The large number of households sharing accounts — combined with competition, is creating revenue growth headwinds. The big COVID boost to streaming obscured the picture until recently,” Netflix said, explaining the difficulties of signing up new customers.
Streaming competition heating up
The world’s dominant streaming service was expected to report slowing growth, amid intense competition from established rivals like Amazon.com, traditional media companies such as the Walt Disney Co. and the newly formed Warner Bros. Discovery Inc. and cash-flush newcomers like Apple Inc.
Streaming services spent $50 billion US on new content last year, in a bid to attract or retain subscribers, according to researcher Ampere Analysis. That’s a 50 per cent increase from 2019, when many of the newer streaming services launched, signaling the quick escalation of the so-called “streaming wars.”
As growth slows in mature markets like the United States, Netflix is increasingly focused on other parts of the world and investing in local language content.
“While hundreds of millions of homes pay for Netflix, well over half of the world’s broadband homes don’t yet — representing huge future growth potential,” the company said in a statement.
Netflix has been able to increase subscription prices in the United States, the United Kingdom and Ireland, to fund content production and growth in other parts of the world, such as Asia, noted Wedbush analyst Michael Pachter. However, subscription pries in these growth markets are lower.
Benchmark analyst Matthew Harrigan warned that the uncertain global economy “is apt to emerge as an albatross” for member growth and Netflix’s ability to continue raising prices as competition intensifies.
Streaming services are not the only form of entertainment vying for consumers’ time. The latest Digital Media Trends survey from Deloitte, released in late March, revealed that generation Z, those consumers ages 14 to 25, spend more time playing games than watching movies or television series at home, or even listening to music.
The majority of gen Z and millennial consumers polled said they spend more time watching user-created videos like those on TikTok and YouTube than watching films or shows on a streaming service.
Netflix, recognizing the shift in consumer entertainment habits, has begun to invest in gaming, but it does not yet contribute materially to the company’s revenue.