For the second quarter in a row, Netflix reported a net subscriber loss on Tuesday. The world’s largest streaming service revealed that during the second quarter of 2022 it had dropped 970,000 subscribers to take its worldwide total to 220.67 million. In the United States and Canada alone, the streaming service lost 1.3M customers during Q2 to bring the total in the countries to 73.28 million.
Despite the declines, that total still represents an 11.67 million year-over-year subscriber increase from when Netflix reported 209 million global subscribers following Q2 2021. The new quarterly decline comes after the streaming service had projected a loss of 2 million subscribers for the quarter.
Perhaps buoyed by the split release of “Stranger Things,” the total number of lost subscribers was less than half of what the company’s guidance had anticipated. Looking forward to Q3 2022, Netflix is projecting adding 1 million subscribers in the new quarter. The supernatural phenomenon launched the first volume of its fourth season on May 27, and helped push Netflix to a dominant position in terms of viewing times across broadcast, cable, and streaming.
“In its first four weeks, ‘Stranger Things’ season four generated 1.3 billion hours viewed, making it our biggest season of English TV ever,” Netflix revealed in a letter to shareholders on Tuesday.
While the streamer did decide to separate the season of super-sized episodes into two parts, Netflix continues to use its success as validation of its binge-model release philosophy.
The cumulative Twitter volume for ‘Stranger Things’ continues to outpace both ‘Obi-Wan Kenobi’ and ‘Top Gun Maverick’,” the streamer said, “highlighting the big conversation around this title and reinforcing that our binge versus one week at a time release strategy drives lots of ‘water cooler conversation.’”
In April when Netflix revealed that it had lost customers for the first time in a quarter since 2011, the streaming giant had 221.64 million subscribers. Since then, it has been a difficult and volatile three months for the streamer; after losing 200,000 subscribers during the first quarter of the year, the company announced a number of changes to long-held corporate philosophies.
In a conference call with analysts immediately after the Q1 earnings report was released, co-CEO Reed Hastings announced that Netflix would be introducing a lower-priced, ad-supported tier. The move came after a decade of insistence that being a premium service without ads was integral to the identity of who Netflix was.
Since the initial announcement, the streamer has agreed to a partnership with Microsoft to supply advertising sales and infrastructure support to the project. The service’s ad-supported tier is reportedly scheduled to launch by the end of 2022.
“We’ll likely start in a handful of markets where advertising spend is significant,” Netflix said in its letter to shareholders. “Like most of our new initiatives, our intention is to roll it out, listen and learn, and iterate quickly to improve the offering. So, our advertising business in a few years will likely look quite different than what it looks like on day one.”
In addition to building an entirely new advertising operation with Microsoft’s help, Netflix is also in the process of contending with other logistical issues when it comes to introducing ads to its content. For its original programming, Netflix has the ability to place ads wherever it wants, but the problem is that its series were not created with commercials in mind, so many of them do not follow a traditional three-act structure that allows for easy ad insertion.
However, more problematic is the fact that the company’s content licensing agreements do not factor in additional monetization via advertising. Therefore, the streamer is having to renegotiate its deals with all of its content partners in order to insert ads before, during, or after programs. It is believed that this will end up costing Netflix an additional 15 to 30% per agreement, and while that will require a significant additional investment for the company, licensed content is a major part of the service’s appeal, and continuing to lose — or not monetize — that incredibly valuable aspect of its library would be a major miss for the streamer.
While not even Netflix executives seem to believe that the introduction of an ad-supported tier will be a magic bullet for everything that is ailing the service, analysts are projecting that the service's revenue will jump dramatically following its launch. However, the prospect of an ad-supported tier is apparently not as intriguing to current Netflix subscribers as the service might have hoped. According to recent surveys, nearly three-quarters of current customers are not interested in the forthcoming option.
However, that could end up being good news for the streamer. Netflix is hoping to increase its subscriber base with this move by welcoming in more cost-conscious customers with the lower-priced subscription option. If the service is able to do that without cannibalizing its premium-tier base, that would seemingly be the ideal circumstance for Netflix.
On Monday, ahead of their Q2 earnings report, Netflix also followed up on another item that executives discussed in April’s earnings interviews. After launching tests in Latin America earlier in the year, the streamer indicated that it would expand the program to more markets, including the United States.
In it's announcement on Monday, Netflix announced that it was bringing its “Add a Home” feature to five more countries — Argentina, the Dominican Republic, El Salvador, Guatemala, and Honduras. Under that option, subscribers on Standard and Premium plans are able to add sub-accounts for up to two people that do not live in the same home. Both “sub-accounts” will come with their own profile, personalized recommendations, login, and password, but will not count as additional subscribers for the streamer’s overall customer base, perhaps indicating a shift in focus from raw subscribers to revenue per customer.
“We’re in the early stages of working to monetize the 100m+ households that are currently enjoying, but
not directly paying for, Netflix,” the streamer told shareholders. “We know this will be a change for our members. As such, we have launched two different approaches in Latin America to learn more. Our goal is to find an easy-to-use paid sharing offering that we believe works for our members and our business that we can roll out in 2023. We’re encouraged by our early learnings and ability to convert consumers to paid sharing in Latin America.”
To date, Netflix has not revealed when the “Add a Home” feature will be coming to domestic customers, but it has reportedly not been entirely well-received in countries that have already had the feature introduced.
The streaming service is also aiming to attract more customers to the platform by marketing its titles in ways that it never has before. Traditionally, the streamer has been hesitant to spend money for individual series and movie releases — outside of its biggest, proven blockbusters — because Netflix believed that the ubiquity of the service and the media attention that it demands would be enough to introduce new properties to audiences. However, recently, the tides have shifted in that regard as Netflix has been investing heavily to promote titles — including the new action thriller “The Gray Man” — in hopes of bringing new customers to the service on the strength of a single title, and to ensure that current customers are aware of the most buzzworthy new content on the platform.
While much of the streaming attention has been on Netflix’s declining subscriber totals and stock price, the service has remained incredibly relevant in the public consciousness. Thanks in no small part to docuseries “Drive for Success,” Formula 1 Racing was able to increase its rights deal with ESPN by $75-$90 million annually — despite the fact that Netflix had entered the bidding for live sports rights for the first time.
Netflix
Netflix is a subscription video streaming service that includes on-demand access to 3,000+ movies, 2,000+ TV Shows, and Netflix Originals like Stranger Things, Squid Game, The Crown, Tiger King, and Bridgerton. They are constantly adding new shows and movies. Some of their Academy Award-winning exclusives include Roma, Marriage Story, Mank, and Ma Rainey’s Black Bottom.