The ominous predictions came true, but only in part. Netflix began faltering in April after revealing it had lost 200,000 subscribers in the first quarter of 2022, and expected to lose a total of two million subscribers by the end of the second quarter. Hoping for some insight into the future of Netflix, Wall Street and Hollywood anxiously awaited the company’s final numbers for the first half of 2022. More than a few industry watchers think the streaming giant has passed its peak.
On a day of widespread stock market gains – the three main indexes gained almost 3% on July 19 – Netflix partially confirmed the forecasts: it lost one million subscribers by the end of June, half of what was expected. But the company’s revenue grew by 9% to US$7.9 billion, and would have been even higher if the strength of the US dollar had not pushed down the value of currencies in other Netflix markets. The biggest customer defection in Netflix history does not seem to have made much of a dent in the company.
Netflix has spent the last three months adapting its business model to face the challenges and economic uncertainty that lie ahead. It dismissed 450 employees and announced a new, less expensive subscription tier supported by advertising. It also aims to charge for password sharing, a measure that many believe was late in coming. These moves by Netflix, especially the introduction of advertising, are being closely watched by its rivals. Direct competitors like HBO have long offered multiple subscription levels, with the lower-cost tiers supported by advertising.
Account sharing has also deprived Netflix of paying customers. The company has nearly 221 million subscribers, but says that tens of million people share accounts instead of paying for their own. In early 2021, more than 850 million people around the world were subscribed to a streaming service.
Netflix has also suffered some content-related setbacks, garnering fewer Emmy Award nominations in 2022 than rival HBO despite offering more programming than the cable network and its streaming service, HBO Max. HBO picked up 140 nominations compared to Netflix’s 105, which highlights the difficulty of consistently producing content that appeals to viewers.
Netflix’s stock price has dropped by 46% since the first quarter earnings report, and nearly 70% since the beginning of the year. Yet the announcement of its second quarter earnings was good enough that Netflix shares rose more than 6% in after-hours trading.
Most analysts assumed Netflix would continue losing subscribers as forecasted, despite the launch of Stranger Things season four, the company’s most successful series. Experts are predicting more trouble for the rest of 2022 as more subscribers cancel their subscriptions when Stranger Things ends. Many analysts believe that Netflix’s subscriber numbers have peaked in the US and Canada, and that its initial growth forecasts for the rest of the world have been overstated. Some experts peg the company’s total potential market at 400 million customers worldwide, instead of the one billion that Netflix was aiming for.
Tepid second-quarter results with subscriber losses offset by higher revenue represent a shaky launch pad for Netflix’s streaming ad sales partnership with Microsoft, and fears persist that the cheaper option could cannibalize ad-free subscriptions.