Netflix Lost Subscribers Last Quarter. Now What?

Shrinking Subscribers

Netflix (NFLX), the streaming industry leader, announced this week it had lost subscribers during its most recent quarter. The news sent the stock’s share price tumbling for the second time this year. Its first sell-off came after executives reported they expected to add fewer new subscribers for this year as a whole, compared to 2021.

Company officials cited a number of ongoing challenges Netflix is facing, including inflation and geopolitical unrest, as the platform lost around 700,000 subscribers by shutting down its service in Russia. Netflix also considers password sharing a big problem, as it’s estimated around 100 million households use accounts that are paid for by the company’s 222 million existing subscribers.

Ad Tier Acceptance

In an effort to promote subscriber growth, Netflix says it’s considering something it long resisted: an ad-supported tier. Some of its competitors like Hulu, Disney+ (DIS), and HBO Max have already offered a cheaper subscription option that includes commercials.

During an interview with analysts earlier this week, Netflix executives said an ad-supported tier now makes sense. This comes as the company has lost a significant number of subscribers in the US and Canada, to the tune of 600,000, which was blamed on a recent price hike. Executives also maintain most of its long-term growth will be in markets outside North America.

Past Its Peak?

As the streaming industry pioneer, some wonder if Netflix has already topped out in terms of growth, especially as competition increases from other platforms. The company’s announced loss of subscribers had a negative effect on some of its peers. Warner Bros. Discovery, Paramount Global (PARA), and Disney all saw their share prices slip following Netflix’s earnings call.

While the modern era of streaming television continues to play out, there’s plenty to suggest Netflix still has room to grow. For example, research shows 56% of US households that are connected to broadband internet use Netflix, meaning just under half the market is still available. Competition is robust, and getting TV over the internet is no longer a novel concept, so Netflix is cracking down on password sharing — and considering ads.

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