Netflix has indicated that changes are afoot in its business model after reporting a loss in subscriber numbers for the first time in 10 years.
The company revealed this week its total number of subscribers worldwide declined by 200,000 in the first three months of the year, compared to the fourth quarter of 2021.
While the company added 2.5 million new subscribers in the first three months, it lost 2.7 million existing customers due to a number of factors. For instance, pulling out of Russia cost it 700,000 subscribers, while 600,000 U.S. and Canadian users stopped paying for the service, following the company’s decision to hike its prices earlier in the year.
Worse is to come, as Netflix believes it will lose additional subscribers in the remainder of this year due to a slower uptake of Smart TVs and devices, problems around password sharing, competition from rival services and the economic situation.
Netflix has also recently raised its prices in the U.K. and is planning price increases in additional regions in the coming quarter.
We have to look back to 2011 for the last time Netflix lost subscribers, which happened after the company first split its video streaming and DVD rental businesses. However, a reversal of growth is likely to become a regular thing in the coming quarters.
Netflix is attempting to increase its revenues in a number of ways, though it hasn’t confirmed any plans so far. However, it has been widely reported that the company will attempt to crack down on user’s password sharing. Netflix has already begun testing tools to help dissuade password sharing in a few countries, though it’s exact plans are unclear.
What is clear is that password sharing is a big problem for Netflix, with an estimated 100 million households guilty of doing so.
“In addition to our 222 million paying households, we estimate that Netflix is being shared with over 100 million additional households, including over 30 million in the UCAN region," the company wrote in its shareholder letter for Q1 2022.
Netflix Chief Executive Reed Hastings also indicated he’s more open to the idea of a cheaper ad-supported subscription tier.
"Those who have followed Netflix have known that I'm against the complexity of advertising and I'm a big fan of the simplicity of subscriptions," Hastings told investors. "But as much as I'm a fan of that, I'm a bigger fan of consumer choice and allowing consumers who would like to have a lower price and are advertising tolerant get what they want makes a lot of sense."
Hastings didn’t offer any details on when the company might roll out cheaper subscriptions or exactly how they would work. For example, would people choosing that option have a more limited catalogue of shows? However, he said it’s a model that’s working for many of the company’s streaming rivals.
“[It is] working for Hulu,” Hastings said. “Disney’s doing it, HBO did it. I don’t think we have a lot of doubt that it works.”
Netflix has other plans to address its losses too. Hastings said the company is looking to improve all aspects of its service with a particular focus on the “quality of our programming and recommendations”.
