After years of conquering users at high speed, streaming giant Netflix lost 200,000 subscribers worldwide in the first quarter compared to the end of 2021, the first in more than a decade. And he expects to lose even more in the spring.
The news sent the stock tumbling 25% on Tuesday, in electronic trading after the New York Stock Exchange closed.
To restore the situation, the pioneer of the sector intends above all to tighten the screw on the side of the sharing of identifiers and passwords, which allow many people not to pay for access to the platform.
And invest more and more in the production of content so as not to give up too much ground to the competition, such as Disney+, which has been a hit since its launch at the end of 2019.
“We know that (the loss of subscribers) is disappointing for our investors, and it’s disappointing of course, but (…) we are committed to achieving these goals and getting back into their good graces,” said Reed Hastings, the company’s co-founder, at the analyst conference.
Netflix has had inflated numbers during the Covid-19 pandemic. The market expected a correction, but not as strong.
The pioneer of the sector had expected to gain 2.5 million additional subscribers – and analysts expected even more – but, on the contrary, lost, bringing its total to 221.64 million subscriptions.
This drop was partly caused by the suspension of the service in Russia, which resulted in a net loss of 700,000 subscriptions. “Without this impact, we would have had 500,000 additional subscriptions” compared to the last quarter, Netflix said in its earnings release.
– No more free sharing of accounts –
Netflix estimates that more than 100 million households do not pay for subscriptions. “We just have to make sure they at least partially pay for the service they love,” Reed Hastings said.
In early March, the group launched tests in South American countries to charge its customers for adding additional profiles to their account. The platform plans to install this system in its main markets within a year.
“We are not trying to prevent people from sharing, but we will ask you to pay a little more to do so”, summed up Greg Peters, the director of operations.
The company does not want to affect another measure, that known as “engagement”, that is to say the time spent by users watching films and series.
On this side, “we are doing very well” assured general manager Ted Sarandos, referring to a successful film and series: “we need to have an ‘Adam Project’ and a ‘Bridgerton’ every month so that the service is always up to expectations”.
“Their streaming market share remains incredibly high, which puts the company in a good position to battle against the competition,” notes Robert Cantwell of Upholdings.
In the United States, Netflix attracts 73.8% of users of video on demand services, in second place behind YouTube (95.8%) and ahead of Amazon (63.8%), according to eMarketer.
But tech behemoths like Amazon and Apple can “broadcast their content at a loss,” says Robert Cantwell.
– Pubs and video games –
In all, Netflix made $7.9 billion in revenue from January to March, almost 10% more than a year ago, thanks in particular to the increase in the number of subscribers on a year (+6.7%) and the increase in its prices.
But the company saw its net profit drop to $1.6 billion from $1.7 billion in the first quarter of 2021.
It now plans to offer cheaper subscriptions, with advertising, within a year or two.
“It’s definitely working for Hulu,” remarked Reed Hastings. “If you want the ad-free option, that will always be possible. If you prefer to pay less and are tolerant of ads, there will be an offer for you too.”
To diversify its sources of income, Netflix has also entered the lucrative video game market. In September, the company bought its first video game studio, Night School Studio, a California start-up. And in November, it launched several mobile games for its subscribers, including some inspired by the universe of the science fiction and horror series “Stranger Things”.
The CFO also announced that spending growth would have to slow down, both for content and for other budgets.