Netflix says it lost 200,000 subscribers in the first quarter of 2022, citing the prevalence of household sharing accounts and growing competition as major causes.
The streaming leader said this in its first-quarter earnings report released on Tuesday.
Netflix also forecasted it would shrink by another 2 million customers in the second quarter of the year.
“Our revenue growth has slowed considerably as our results and forecast below show. Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally,” the company said.
“However, our relatively high household penetration – when including the large number of households sharing accounts — combined with competition is creating revenue growth headwinds.
“The big COVID boost to streaming obscured the picture until recently.
“While we work to reaccelerate our revenue growth — through improvements to our service and more effective monetization of multi-household sharing – we’ll be holding our operating margin at around 20%.”
The management attributed the decline to four factors.
“First, it’s increasingly clear that the pace of growth into our underlying addressable market (broadband homes) is partly dependent on factors we don’t directly control, like the uptake of connected TVs (since the majority of our viewing is on TVs), the adoption of on-demand entertainment, and data costs,” Netflix said.
“The company said there are more than 100 million households that use its service and don’t pay for it, on top of its 221.6 million subscribers.
“The company said competition for viewing with linear TV as well as YouTube, Amazon, and Hulu has been robust for the last 15 years.
“Fourth, macro factors, including sluggish economic growth, increasing inflation, geopolitical events such as Russia’s invasion of Ukraine, and some continued disruption from COVID are likely having an impact as well.”
Reed Hastings, co-founder f Netflix, had told Bloomberg News that he doesn’t want to offer advertisements and had no problems with password sharing.
Ted Sarandos, co-chief executive officer, Netflix, had previously dismissed the company’s slowing subscriber sign-ups as a speed bump related to the pandemic, which had accelerated Netflix’s growth in 2020.
But the company’s growth hasn’t returned to pre-pandemic levels.
Netflix hints at password sharing crackdown as subscribers fall
Netflix has hinted it will crack down on households sharing passwords as it seeks to sign up new members following a sharp fall in subscribers.
The number of households using the streaming service fell by 200,000 in the first three months of the year as it faced stiff competition from rivals.
It was also hit after it raised prices in some countries and left Russia.
Netflix warned shareholders another two million subscribers were likely to leave in the three months to July.
“Our revenue growth has slowed considerably,” the firm told shareholders on Tuesday after publishing its first quarter results.
“Our relatively high household penetration – when including the large number of households sharing accounts – combined with competition, is creating revenue growth headwinds.”
The streaming giant estimates more than 100 million households are breaking its rules by sharing passwords.
Boss Reed Hastings previously described the practice as “something you have to learn to live with”, adding that much of it is “legitimate” between family members. The firm also said account sharing had probably fuelled its growth by getting more people using Netflix.
But on Tuesday, Mr Hastings said it was making it hard to attract new subscribers in some countries.
“When we were growing fast, it wasn’t a high priority to work on [account sharing]. And now we’re working super hard on it,” he told shareholders.
The firm said payment plans it is testing to curb password sharing in Latin America could be rolled out to other countries.
Since last month, account holders in Chile, Costa Rica and Peru must pay to add user profiles for people outside their household (the company currently allows people who live together to share their Netflix account).
Users can add up to two extra profiles for $2-$3 (£1.53-£2.30) a month each, on top of their regular fee.
Netflix – which did not say how it would enforce the rule – said it was seeking a “customer centric” solution.
“The principle way we have is asking our members to pay a bit more to share the service outside their homes,” said Greg Peters, Netflix’s chief product officer.
Dominic Sunnebo, an analyst at research firm Kantar, warned the plan could backfire at a time when consumers were looking for ways to save money.
“If the schemes to counter password sharing move too fast and too aggressively, it also risks alienating a potential future audience – many who password-share beyond the household are not actually aware they’re breaking the terms of their subscription.”
Cost of living hit
Netflix said that pulling out of Russia in March in response to the Ukraine war had cost it 700,000 subscribers.
And another 600,000 people stopped using its service in the US and Canada after it put up prices in January.
The firm raised prices across all of its US plans, with a basic plan increasing from $9 to $10 per month, and a standard from $14 to $15.50.
In the UK, basic and standard plans have both increased by £1 a month to £6.99 and £10.99 respectively.
Netflix said the price rises would yield more money for the firm, despite the cancellations. But analysts say the rising cost of streaming services is wearing on households as the cost of living rises.
In the UK, households cancelled more than 1.5 million streaming subscriptions in the first three months of the year, with 38% saying they wanted to save money.
IMAGE SOURCE,LIAM DANIEL/NETFLIXSeeming to acknowledge this, Mr Hastings said Netflix was looking at launching a free ad-supported service like its rivals Disney and HBO.
Analysts say it could open a significant new revenue stream for the company, which has so far shunned advertising.
“Those who have followed Netflix know that I’ve been against the complexity of advertising, and a big fan of the simplicity of subscription,” he said. “But, as much as I’m a fan of that, I’m a bigger fan of consumer choice.”
Netflix’s biggest threat is intense competition from firms such as Amazon, Apple and Disney, which are pouring money into their online streaming services, according to experts.
Paolo Pescatore, an analyst at PP Foresight, said Netflix’s subscriber loss was a “reality check”, as it tries to balance retaining subscribers with raising its revenue.