Netflix lost members for the first time in ten years at the beginning of the year, and the company warned it expects to lose even more in the spring, sending its stock down again on Tuesday.
The streaming giant’s stock dropped nearly 20% after it was revealed that it had lost 200,000 members internationally in the first quarter. The company was expected to attract 2.5 million users, according to Wall Street. In the current quarter, Netflix expects to lose 2 million global customers.
In a surprise move Netflix executives said they were now open to adding advertising to the service – in return for a lower-priced subscription. Netflix co-founder and chairman Reed Hastings has long been opposed to adding commercials or other promotions to the service.
The company blamed the drop on a number of factors, including its huge size, increased competition, the economy, the war in Ukraine, slowing rollout of broadband, and the large number of people who share their Netflix accounts with non-paying households. It also said the decision to close up shop in Russia cost the company 700,000 new additions.
Netflix said in a note to investors: “Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally. However, our relatively high household penetration – when including the large number of households sharing accounts – combined with competition, is creating revenue growth headwinds.”
The company recently announced a crackdown in Chile, Costa Rica and Peru on people sharing their Netflix accounts with other households. It is expected to expand the scheme.
According to its latest financial report, on top of its 222m paying households, Netflix is being shared with over 100m additional households, an issue that makes it “harder to grow membership in many markets” and a problem that was obscured by the company’s growth during the pandemic.
“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,” Netflix said.
On a call with investors Hastings said Netflix had always had a lot of viewers who used paying members’ accounts but when the company was growing fast that “wasn’t a high priority”.
“These are already over 100m households that are already choosing to view the service. They love the service, we have just got to get paid at some degree for them,” he said.
Hastings said Netflix was also looking at the range of its plans and was weighing whether to add a cheaper, ad-supported subscription as “a consumer choice”, a model he has avoided in the past.
“We have gone through a lot of changes and we have always figured them out, one by one,” said Reed. “It’s super exciting. We are going to figure this one out.”
The decline brought Netflix’s paid global subscriber base to 221.6 million, down from 221.8 million in the prior quarter. The company made $1.6bn in profit over the quarter on $7.8bn in sales.
This is Netflix’s second consecutive set of disappointing results. In January, when the company announced subscriber growth was slowing, investors wiped almost $45bn (£33bn) from its value.
