by Thinus Ferreira
Netflix shocked and saw its share price fall when the world's leading video streaming service on Tuesday night revealed a growth-reversal with a loss of 200 000 subscribers in the first quarter of 2022, and saying that it plans to add advertising within a year or two and will further tighten password-sharing to try and boost subscriber growth.
Netflix released its first quarter results late on Tuesday, shocking the market when it announced that it missed its projected target of adding 2.5 million new subscribers by 31 March and instead lost 200 000 subscribers to now stand at 221.64 million global subscribers - its first loss in its subscriber tally since October 2011.
Netflix still added 8.3 million subscribers in the fourth quarter of 2021. Netflix now projects to lose subscribers again - and even more - announcing that it projects to lose 2 million subscribers during the second quarter of 2022.
Netflix also lost 700 000 subscribers in Russia after it suspended its service following Russia's invasion of Ukraine and its war with the neighbouring country.
In its quarterly letter to shareholders, Netflix blamed password-sharing, saying 100 million more homes access its content through password-sharing beyond the 221.6 million paying subscribers.
"Account sharing as a percentage of our paying membership hasn't changed much over the years, but, coupled with the first factor, means it's harder to grow membership in many markets - an issue that was obscured by our Covid growth," the streamer said.
Netflix is also indicating that it's facing bigger competition from rivals. In South Africa, Netflix and MultiChoice's Showmax together with Amazon Prime Video and Apple TV+ will for instance now also compete from 18 May with Disney's Disney+ streamer when it launches locally, giving video consumers even more choice.
"Competition for viewing with linear TV as well as YouTube, Amazon and Hulu has been robust for the last 15 years. However, over the last three years, as traditional entertainment companies realised streaming is the future, many new streaming services have also launched," Netflix says.
"Our plan is to reaccelerate our viewing and revenue growth by continuing to improve all aspects of Netflix - in particular the quality of our programming and recommendations, which is what our members value most."
Adding ads
After Reed Hastings, Netflix founder and co-CEO said for years that he was adamant that Netflix won't be showing or carrying TV commercials, Netflix did a turnaround on Tuesday when Hastings in the company's pre-recorded quarterly earnings interview said that Netflix is going to start showing adds and will begin to experiment with cheaper, ad-support packages that will lower the subscription fee cost to consumers.
Netflix now plans to introduce AVOD in a cheaper subscriber option, similar to what eMedia has in South Africa with e.tv's eVOD video streaming service.
Disney also announced recently that Disney+ will be introducing a cheaper ad-supported Disney+ package later this year in the United States, that it plans to roll out internationally in 2023.
"Those that have followed Netflix know that I've been against the complexity of advertising and a big fan of the simplicity of subscription," Reed Hasting said.
"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 to get what they want, makes a lot of sense."
"Allowing consumers who would like to have a lower price and are advertising-tolerant get what they want, makes a lot of sense. So, that's something we're looking at now; we're trying to figure out over the next year or two. Think of us as quite open to offering even lower prices with advertising as a consumer choice."
"It's working for Hulu, Disney's doing it, HBO did it. All these companies have figured it out. I'm sure we'll just get in and figure it out, as opposed to test it and maybe do it or not do it."
Ted Sarandos, Netflix chief content officer and co-CEO, in the pre-recorded quarterly earnings presentation said "We've got to compete, and we've got to continue to improve on the core service which is making TV series and films and now games that people really love".
"That's what we're really focused on and that's a thing we can continue to grow the business in."
"We talked about being highly penetrated in some of those core markets with users, which means that it's harder to get them to join Netflix if they are already using Netflix. So we've got to figure out these different models that we're doing now to more effectively monetise that viewing."
