Netflix loses 970,000 customers, a result less ‘horrifying’ than expected

Netflix kicked off earnings season for media companies. Theirs were awaited with great impatience, after a dismal start to the year received as the first sign of what Morgan Stanley has qualified of “streaming recession”.

The company lost 970,000 subscribers, half the drop they expected. Without a doubt, losing less than a million is better than losing two. This is perhaps why this title has succeeded in supplanting the other: it is the second quarter which records losses and almost five times those of the previous one.

In a note to clients Eric Sheridan, an analyst at Goldman Sachs, affirmed that it’s clear that Netflix remains “stuck in a phase of normalizing post-pandemic growth numbers while facing an obvious increase in competition.”

It is in the United States that the pressure from new competitors is doing the most damage. In this territory, it lost 1.3 million customers, almost double what it lost in the countries of Europe, the Middle East and Africa (Emea), with 770,000. Latin America and Asia-Pacific brought the ball of life with them, adding 10,000 and 1.08 million subscribers to Netflix’s base, which now stands at 220.67 million worldwide.

After the presentation of the results, the actions of Netflix rose 6%, topping $200 (196 euros) per share for the first time in a month. The market has reacted on the upside and is giving Netflix some leeway to get back on track and back on the path to growth. In fact, they forecast a million new customers for the next fiscal year. Of course, the shadow of doubt hangs over the benefits. Its current net income stands at 1,441 million and, although it exceeds the records of a year ago (1,353 million), it expects a greater drop in the next quarter, below 1,000 million.

Netflix loses nearly 1 million subscribers, the worst drop in its history, even if it exceeds the platform’s low expectations

The predictions Netflix had made were dismal and many wonder if it was a decision to realize what they have now realized: that a bad result is good news. In April, they had forecast a drop of 2 million subscribers in the following quarter. It was this projection (and not so much its actual loss of 700,000 in the first quarter) that caused its stock market crash.

That Wall Street reacted drastically despite Netflix’s leadership position not being compromised was a logical reaction. The market has understood that it has been rewarding a single indicator (growth in the number of subscribers) for years, ignoring the reluctance aroused by an unsustainable economic model. And this indicator started making waves.

Netflix, which has seen its market value plummet in recent months, has been pushing for change, aware that his activity was going to be scrutinized. That’s what he used as a narrative to reassure investors and focus their attention on what matters most: generating profits.

If subscribers aren’t continuing to fill the coffers, the company needs to be more austere in its spending, seek alternative revenue streams, and focus on content that reconnects with customers to prevent them from leaving.

Part of the spending cut comes from a major round of layoffs (nearly 500 employees in recent months) and limited investment in original content. Netflix, which closed 2021 with spending close to $17.5 billion, estimates that the investment will be a little below the next 2 years (17,000 million), ending 7 years of gradual increase in spending on original content.

Photograph 'Stranger Things'.

But, without a doubt, Netflix’s greatest asset in accelerating its revenue growth and improving monetization has been its decision to launch an AVOD version (more affordable with advertising) which will result in a cheaper price and an advantage extra in advertising. The decision to integrate ads, after years of outright rejection, has become one of Netflix’s main arguments to work on what makes it weaker compared to its competitors (the lack of alternative sources of revenue outside of subscriptions) and perception of the service consumable given the value for money in the face of family savings which are suffering from the pressure of inflation.

Ted Sarandos said last June that his goal with this new plan is to manufacture the final product “better than tv“. They are partner the technology and sales management to make it happen will be Microsoft’s strategically interesting travel companion. It is a smaller company than Google and NBC Universal but, unlike them, it has no direct interests in the business of diffusion.

Moreover, it raises obvious synergies with Netflix in the video game sector, a business sector in which the Los Gatos company has obvious interests. During the presentation of the results, they confirmed that the launch of the AVOD version will take place in early 2023 in territories yet to be specified.

Also announced that the service with advertising will not have the same content as the version without, given that much of the licensed content was not contracted for said operating model. They have cleared up who have discussions with studios such as Warner, Universal and Sony to ensure that both releases have as seamless a catalog as possible.

Netflix CEO Reed Hastings sets a date for the death of traditional TV

The the unpopular implementation of measures to limit account sharing is another way the company can achieve greater direct benefit from its customers. At present, he continues to perform various tests to develop an implantation mechanism. The latest was launched this week in several Latin American countries, allowing users to add homes to their account in exchange for a fee.

One of the direct consequences of Streaming Wars it’s the top-tier proposition of the competition that eroded Netflix’s content offering. Keeping victims under control relied heavily on engaging content. And that’s where the fourth season of stranger things played a fundamental role in driving retention and improving the value proposition of the platform.

Evidenced by its more than 1,300 million cumulative hours (it is already the most watched television program in English in the history of the platform) and its cultural impact (it catapulted 2 songs from the 80s to the rank of number one and exceeded two of the most popular in conversation) the great simultaneous phenomena in the same period: Top Gun Maverick there Obi Wan Kenobi).

Netflix needed great content to once and for all erase comparisons with content from other platforms, with which it always seemed to lose out. It also introduced a substantial change in the first model. The new season has longer chapters released in volumes, which have fostered a more palatable cinematic experience and see again what a frenzy.

Consolidate an alternative model to frenzy It could also help to reassure Wall Street, as the extension of the commercial life of content affects the retention rate.

Netflix is ​​not dead, but the pure subscription model, the one they embraced at birth, one of uncontrolled spending, better-than-TV experience and marathon-encouraging block previews is dying. Even they had to come up with a plan B.

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