Netflix has reported a loss in subscriber numbers for the first time in 10 years after having raised its prices in January.
In a letter to shareholders yesterday, the company reported a global net loss of 200,000 paid users in the first three months of 2022 compared to Q4 of the previous year. Netflix said it is braced to lose a further two million more subscribers before July.
With 222m paid users, Netflix still easily retains its position as the undisputed video streaming market leader. However, after its acknowledgment that revenue growth had slowed considerably, shares in the streaming giant dropped by more than 25 per cent, wiping more than £23bn ($30bn/AU$40.3bn) off its market value on Tuesday night.
In its letter to shareholders, Netflix painted a gloomy outlook despite the sign-up boom it experienced during the first year of the COVID-19 pandemic, saying that “Covid clouded the picture by significantly increasing our growth in 2020, leading us to believe that most of our slowing growth in 2021 was due to the Covid pull forward”.
Globally, more than 100m households are estimated to be sharing Netflix accounts. While sharing passwords outside of a household violates Netflix's terms of service, it’s long been a common practice that the company has recognised as one of its most vital marketing tools. CEO Reed Hastings even called it “a positive thing” back in 2016.
The service has previously trialed restrictions on password sharing with verification codes and is currently testing a new feature in Chile, Costa Rica and Peru where subscribers can add up to two cheaper sub-accounts for people outside of their homes.
In a video message regarding the shareholders' announcement, Netflix chief operating officer Greg Peters implied that any global rollout of more stringent account sharing protocols would be some way off, saying: “Just to set your expectations, my belief is that we’re going to go through a year or so of iterating and then deploying all of that."
But a clampdown is undoubtedly forthcoming. Peters clarified the company's position by saying: “If you’ve got a sister that’s living in a different city, you want to share Netflix with her, that’s great; we’re not trying to shut down that sharing. But we’re going to ask you to pay a bit more to be able to share with her, so she gets the benefit and the value of the service, but we also get the value of the revenue associated with that viewing.”
Hastings echoes those sentiments: “We’re working on how to monetise sharing. You know, we’ve been thinking about that for a couple of years. But [...] when we were growing fast, it wasn’t the high priority to work on. And now we’re working super hard on it. Remember, these are over 100 million households that already are choosing to view Netflix. They love the service. We’ve just gotta get paid in some degree for them.”
Previously, Netflix has always said adverts are not on the cards, despite recent hints that that could change. But on Tuesday, Hastings admitted that it was "pretty clear" that an ad-supported strategy was working for the competition. "Those who have followed Netflix know that I've been against the complexity of advertising and a big fan of the simplicity of subscription. But, as much as I'm a fan of that, I'm a bigger fan of consumer choice," he said.
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