Netflix announced that it lost members in a quarter for the first time in a decade.
The streaming behemoth made the statement during its recent earnings call, where it also stunned investors by estimating that its subscriber base would shrink by another 2 million in the current quarter, to around 219.6 million, after falling by roughly 200,000 in the first quarter of 2022.
Following the revelation, Netflix shares fell by more than 25%, erasing $30 billion from the company’s market capitalization.
What They Are Saying
Netflix recently informed shareholders that it anticipates adding 2.5 million net subscribers during the first quarter. During the same period last year, Netflix added 3.98 million paid subscribers.
The firm stated that if its service had not been suspended in Russia and all Russian paid memberships had been wound down, it would have witnessed 500,000 net additions during the most recent quarter, resulting in a loss of 700,000 users.
Netflix ascribed the slowdown to saturation in its most important areas, but it also acknowledged the impact of increased competition from streaming services established by traditional media companies like Disney, Warner Bros. Discovery, and Paramount.
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Netflix intends to maximize revenue from existing subscribers and viewers after subscriber losses. To do this, the company is now thinking about limiting password sharing, which hastings had said was a good thing a few years ago.
“We’re thinking about how to monetize sharing,” Hastings stated during the results call. We’ve been thinking about it for a few years. It wasn’t a high priority to work on while developing quickly; today, it’s a top priority.”
Netflix believes that approximately 100 million households exchange passwords. The corporation has already begun testing methods to prevent password sharing. On the call, COO Greg Peters stated that Netflix does not want to prohibit password sharing but instead charges a fee to consumers who wish to share their accounts with friends and family.
To stem the loss of members, Netflix will launch lower-cost, ad-supported plans. Given that Netflix has hiked rates six times in the last eight years, making subscriptions twice as expensive as in 2014, this news suggests that the firm is open to exploring an alternative revenue model.
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“Those who have followed Netflix know that I have been a strong opponent of the complexity of advertising and a strong supporter of the simplicity of membership,” Hastings remarked. “But, as much as I support that, I am a stronger supporter of consumer choice, and letting people who want a lower price and are tolerant of advertising obtain what they want makes a lot of sense.”
Netflix’s Long Game in Africa: The Next Wave
Netflix has struggled to penetrate the mass market in Africa due to its high subscription price. Last year, the streaming behemoth launched a $3.99 mobile-only package, 50% less expensive than the basic plan.
Unlike the standard 30-day trial, which allows consumers access to Netflix’s entire library for a limited time, Netflix only makes around one-quarter of its movie and television show collection available in this free plan. Even yet, $3.99 is a lot to ask of many Africans, given that 490 million people in Africa live below the poverty level of $1.90 a day, according to a 2021 UN estimate.
The ad-supported approach may be Netflix’s best bet for unlocking growth on the African continent, where the population may not be able to pay higher pricing but is content with advertisements.