Netflix experienced a staggering 200k subscriber loss for the first time in its 25-year history in April 2022. Wall Street analysts were expecting a growth of 2.5 million new subscribers. Instead, the overall total subscriber base was down to 221.64 million.
This fall came as a big jolt to the company and its stakeholders as they have only seen massive growth since 2011.
But it is not where the story ends.
In a market swamped with streaming services at a more affordable price range, Netflix estimates that there will be a further loss of approximately 2 million subscribers in the second quarter of the year.
The company signaled immediate cutbacks in content expenditure, let go of employees, and rolled back any discretionary spending.
Impact of the Subscriber Loss on its Stock Price
As a result of the current and estimated loss in subscribers, Netflix’s stock prices dropped 35% on 20 April 2022 and wiped more than US$ 50 billion off its market cap. As of April 2022, it was one of the worst-performing stocks in the S&P 500, down by a whopping 62.5% in 2022.
Given the weak Q1 performance, the company reduced its subscriber forecasts and pushed back its estimates on profitability to a significant extent. Another major impact of the drop in share price was investors selling Netflix shares instead of buying.
This event triggered a tumble-down effect on the stock prices of other streaming services, too. Disney shares took a 5.5% dip, whereas Roku fell more than 6%. Paramount’s share price slumped 8.6%, and Warner Bros. Discovery witnessed a dive of 6% on the same day.
So, why did Netflix lose its subscribers? We have five reasons for you.
1. Netflix Suspended Its Service from Russia:
The Russia-Ukraine war has had a widespread impact across the globe. Along with other global conglomerates, Netflix also decided to suspend services in Russia.
Discontinuing services in this region led to an instant loss of almost 700,000 subscribers.
2. Netflix Became More Expensive in US and Canada:
A price hike for Netflix subscribers in the United States and Canada followed as the New Year rolled in. It led to a frenzy of subscription cancellations among long-term subscribers as the region was already experiencing high inflation with the rise in costs of everyday necessities.
Netflix claims that it lost approximately 600,000 subscribers in the US and Canada because of the hike in subscription costs in 2022.
3. Password Sharing Slows Down Growth for Netflix:
The issue of password sharing among Netflix subscribers has been a bane for the company. Growth has been affected as subscribers ignore the company’s Terms and Conditions on sharing their account credentials.
Netflix estimates that there may be ~100 million households globally, of which 30 million in the US and Canada use the streaming service without paying the designated subscription fee.
4. Not Enough Good Quality Content on Netflix:
Experts say that the quality of content on Netflix has been deteriorating over the last few years. This deterioration could be because Netflix lost out on excellent quality content from credible media companies to competitor streaming services.
Moreover, media companies have also opted to merge and launch their own streaming platforms which led them to push out content directly on their service rather than licensing it to Netflix.
As a result, Netflix had to invest more in creating original content whilst letting go of all-time favorites and classics in the process.
5. There Are Too Many Competitor Streaming Platforms:
When Netflix launched its services, it had the first-mover advantage. However, the market has streaming services available to subscribers at a fraction of the price of Netflix.
Among the competition, Netflix has the highest subscription price. It boils down to the shows viewers would pay to watch. Given that Netflix is losing out or canceling popular shows, this has not gone down well with loyal Netflix subscribers.
How Netflix Plans to Combat These Losses?
The loss of 200k subscribers and fall in stock prices had a significant impact on Netflix. That said, Netflix plans to battle these losses and ensure that the business has sustainable growth in the long term.
The primary concern for the company is to deal with the problem of account sharing. There are 222 million households that subscribe to its services, and ~100 million watch Netflix content for free.
Netflix plans to run a trial in select countries that will help them manage the issue of password sharing better., Netflix introduced two new paid sharing features where current subscribers can add additional subscribers to the existing plan to monetize these free-watching households.
Moreover, introducing a more economical plan with ads may be the answer to bridge the gap and onboarding these freeloaders as paying subscribers to Netflix. Doing so will automatically be a revenue generator for the company. It also solves the problem of Netflix offering a premium service in the backdrop of rising inflation globally.
The recent subscriber loss is a warning bell of a less promising future for Netflix. Addressing the de-growth in subscriber base and a crackdown on password sharing with an ad-supported economical platform does not give enough reasons for subscribers to remain loyal to the streaming giant.