Netflix evaluates a subscription with advertising
Loading player Netflix is considering introducing a cheaper subscription than it is today, and supported in part by advertising, to incentivize more people to sign up for its service after losing more subscribers for the first time in more than ten years than it has earned. The loss was announced on Tuesday and, coupled with other less promising data than usual, led to shares in the US streaming company losing up to 25 percent of their value in trading after the close of markets in the US.
In the periodic communication and analysis of economic data, Netflix said it closed the first quarter of 2022 with about 200 thousand fewer subscribers than it had in the previous three months. The company also communicated that it was unable to add the expected 2.5 million subscribers in the same period and to foresee a further reduction in the number of subscribers in the current quarter, estimating at least 2 million fewer subscribers.
For years Netflix had been the reference point to understand how the streaming services industry was moving, both for the high number of its subscribers, and for the large amount of productions and investments in recent times; this year alone, the company expects to spend up to $ 20 billion to produce television series and films. The difficulties of recent months are therefore observed with great attention by other large platforms, starting with Disney, whose streaming service is just over two years old and has so far collected important successes.
Netflix believes that one of the causes in the reduction of their growth is related to sharing passwords to access their services, with different people using the same account to save some money. According to the company, in addition to the 222 million subscribers, the service is used by at least another 100 million people or households, a third of whom are in the United States and Canada.
There could therefore be important margins for recovering new subscriptions, introducing greater controls on access systems and simultaneously offering a subscription option that allows the password to be shared between a certain number of people. Currently, the use of accounts should be limited to a single core of users, who, depending on the type of subscription, can view content simultaneously on different devices through their profiles.
In the past, the sharing of passwords was tolerated, even if it was not formally allowed, because Netflix was interested in reaching as many people as possible, in order to make their services known and thus gain new subscribers. In a phase of strong user growth, sharing the same account was a marginal problem, while it becomes central in a phase like the present one in which the company struggles to retain subscribers and convince new people to subscribe to its services.
The slowdown in new subscriptions has led to a decline in revenue growth, after years of Netflix reporting increases of about 20 percent each quarter. In the first three months of this year, revenues increased by 10 percent, reaching $ 7.87 billion against the initially forecasted $ 7.93 billion. Earnings were $ 1.6 billion, up from $ 1.71 billion in the same period last year.
The lower revenues and profits arose primarily from the reduction in subscriptions. Netflix currently has 221.6 million subscribers, up from 221.8 million in the previous quarter. The company lost 700,000 subscribers in Russia, where it suspended its operations following the Russian military invasion of Ukraine, and lost nearly a million in the Americas. The new users who registered in the last quarter were not enough to compensate for the loss of subscribers, leading to an overall reduction of 200 thousand subscribers.
The reduction in subscribers was also affected by Netflix's choice to raise the prices of its subscriptions, with increases for the options most used by users starting last January. The company hadn't revised its prices for almost two years and following the increases many have preferred to abandon the service, perhaps moving towards other streaming platforms that cost less.
After years of not having had much competition, Netflix is now moving into a much more varied market with many rather fierce competitors who in some cases can afford to ask their customers for lower prices. Disney + has for some time offered its subscription in promotion at a few euros for the first few months, while in the United States other services such as Hulu offer a rather rich catalog, but at low prices if you use the option with advertising.
In the past, Netflix executives had always said they were against subscription plans with advertising, but given the latest trends they are now reconsidering the possibility of offering a cheaper subscription supported in part by advertisements. In this way the company could incentivize new subscriptions, especially in economically less advanced countries, where the company has long said it sees great growth opportunities to offset the difficulties in the United States and partly in Europe.
Netflix spends more than other platforms on the development and production of a large amount of television series and movies, some of which have become big hits like Stranger Things, The Crown and Bridgerton, while others have had less luck like Space Force. Recently, the company has also achieved important successes with productions outside the United States, as in the case of the South Korean TV series Squid Game, one of the most popular and discussed last year.
The coronavirus pandemic had favored an increase in Netflix subscriptions in 2020, at a time when various types of lockdowns were in force in many countries, with the demand for the population to stay at home as much as possible to reduce the spread of infections. Netflix, like other platforms, had detected an increase in the hours spent on its applications, although the following year it had started to record less encouraging data on the strength of new subscriptions.
Overall, Netflix still has a solid financial foundation and good potential to continue expanding outside the United States. In the last quarter, its presence increased in Japan and in important oriental markets such as Thailand, Taiwan and the Philippines.