After Netflix reported a subscriber loss for the first time in more than a decade last quarter, the company’s second-quarter earnings report revealed that the number of subscribers worldwide fell by 1 million, including a drop of 1.28 million in the US alone and Canada between late March and late June. That’s better than the forecast of a loss of 2 million globally, but the subscriber shortfall in the US and Canada is double the 600,000 drop reported for Q1. Netflix now reports that it has 73.28 million paid subscribers in the US and Canada and 220.67 million worldwide.
It comes nearly a week after Netflix announced a partnership with Microsoft for the cheaper, ad-supported tier, which it expects to launch by early next year. In the letter, Netflix emphasizes that its current plans will remain ad-free. Netflix executives remain optimistic about the prospect of an ad-supported level, noting that “over the long term, we believe advertising can enable significant membership growth (through lower prices) and profit growth (through ad revenue ).’
The plan is to first roll out to markets where advertisers spend the most money. Netflix executives wrote, “Our hope is to create a better than linear TV advertising model that is more seamless and relevant for consumers and more effective for our advertising partners.” Netflix adds that viewing time has also increased . It points to a study by research firm Nielsen that found Netflix’s share of US TV viewing rose to a record high of 7.7 percent in June 2022, up from 6.6 percent last June.
Revenue rose 9 percent year over year from $7.3 billion in 2021 to $7.97 billion this quarter. While the streamer has hit a few hiccups in recent months, including two separate layoffs affecting hundreds of workers, there was some good news. The release of Season 4 of Stranger Things elevated the series to the second most-watched show on the service, behind Korean hit Squid Game, which Netflix announced in June would return for a second season. Netflix’s earnings report also revealed that the company has acquired Animal Logic, the animation studio behind The Lego Movie.
Netflix is working on an “easy-to-use paid sharing offering” that it aims to launch in 2023.
The ad-supported tier is just one avenue Netflix is exploring to counter subscriber decline; it’s also part of the company’s effort to hang on to those it already has. But Netflix wants to lock out non-paying subscribers as well, and partly blamed password sharing for its initial subscriber decline last quarter.
Netflix executives say they are working on an “easy-to-use paid sharing offering,” which they aim to launch in 2023. In March, Netflix launched tests in Chile, Costa Rica and Peru that should allow users to add sub-accounts for users outside the primary account holder’s household. Netflix expanded its efforts to crack down on password sharing this week and began allowing users in Argentina, El Salvador, Guatemala, Honduras and the Dominican Republic to purchase an additional “home” located outside the main household where they can use Netflix on all devices.
Perhaps one of the biggest threats facing Netflix is increasing competition from newer players in the streaming industry, such as Disney Plus, Paramount Plus and HBO Max. Last quarter, Paramount Plus subscribers grew to nearly 40 million, HBO and HBO Max added an additional 13 million subscribers, and Disney Plus also gained 8 million new users. Disney Plus already has plans to launch an ad-supported tier later this year and will also use live streaming for certain series like Dancing With the Stars — something Netflix is currently testing.
Netflix is likely to reveal more information during a video earnings call to be held at 6:00 PM ET on its investor relations YouTube channel.
Disclosure: The Verge recently produced a series with Netflix.
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