Netflix has for long been the streaming giant in the world. So it came as a shock when, at the beginning of 2022, the streaming juggernaut announced that it had lost subscribers for the first time in ten years.
After adjusting to the initial shock and bad news, Netflix seems to have stabilized the ship. Its latest earnings report shows Netflix lost fewer subscribers than expected.
The company is convinced the tide is turning back in its favor, and here's why.
Netflix Loses Fewer Subscribers Than Expected
Netflix's earnings report for the second quarter of 2022 shows that it has lost 970,000 subscribers. Paradoxically, Netflix and its investors believe this is good news, as they expected to lose 2 million subscribers in the same period.
The company's profits improved to $1.4 billion, up from $1.3 billion, and revenue improved by 8.6% to $7.9 billion. Even though there are many reasons why Netflix is losing subscribers, the company says it feels "confident and optimistic about the future."
Why Netflix Isn't Worried About Losing Subscribers
Despite the bad news, Netflix is confident about its future. There are the reasons why:
1. Netflix's Price Hikes Impact Has Leveled-Off
When Netflix raised its price for a Standard Plan in the US to $15.49/month, it became the most expensive streaming service in the US, and this caused it to lose subscribers to its rivals.
Netflix believes the impact of this has leveled off, and prices will be "less of a churn factor" in the months and years ahead.
2. Netflix Has More Content in Its Library
According to The Hollywood Reporter, Nielsen data says Netflix commanded more TV viewing time in the US during the 2021-22 TV season. This is due to Netflix's strong library of original titles.
Netflix has noted that it has even newer shows and movies coming up in the second half of 2022, which it expects will help it retain subscribers and attract new ones.
Indeed, Stranger Things has been a smash hit for Netflix and even started trends like Spotify telling you which song would save you from Vecna. According to CNBC, the release of the fourth season of Stranger Things in two parts may have limited subscriber loss and even driven new subscribers to sign up or return to Netflix.
3. Netflix Saw Subscriber Growth Outside the US
Netflix's biggest subscriber loss came from its biggest market, the United States and Canada, where it lost 1.3 million users in the second quarter of 2022. However, this was offset by subscriber growth in the rest of the world, bringing overall subscriber loss down to 970,000.
Netflix says it is the dominant creator of non-English programming worldwide, which makes it relevant to audiences all over the globe. For example, it says The Marked Heart, a Colombian series, found a global audience and ended up in the top 10 in 81 countries worldwide by its second week.
4. Netflix Is Working on an Ad-Supported Subscription Plan
With Microsoft as its technology and sales partner, Netflix is working on an ad-supported subscription plan to be released in early 2023. Netflix expects its highly engaged audience and high-quality content to attract premium advertisers.
The company also believes that advertising will raise the number of subscribers through lower prices and that ad revenues will power profit growth over the long run.
5. Netflix Is Cracking Down on Password Sharing
Netflix says that its subscriber numbers are lower than they should be since at least 100 million accounts are shared by more than one household. In March 2022, Netflix started cracking down on password sharing by adding two new features that will let users share their accounts outside their households for an extra price.
Once they iron out the kinks, the company expects to roll out this feature worldwide. "We’re encouraged by our early learnings and ability to convert consumers to paid sharing in Latin America," says Netflix.
6. More Creative Capacity Through Acquisitions
By acquiring the Australian animation firm Animal Logic, Netflix has made a big move toward increasing its capacity to build animated feature films.
Netflix has also acquired three games studios (Night School Studios, Boss Fight Studios, and Next Games) which give it enhanced expertise in developing and releasing mobile games.
Netflix expects animated features and mobile games to add more variety to its content offering, thus retaining existing subscribers and attracting new ones.
Great Content Will Ensure Netflix Is Okay
The human desire for entertainment is not going anywhere. And with streaming technology and internet availability improving globally, Netflix is in a good place to capitalize on our constant need for entertainment.
However, content is King. Netflix's future depends on its continuing ability to meet the twin demands of quantity and quality in content.