NETFLIX MELTDOWN AND NEW SUBSCRIPTION PLAN COMING

Good morning dear readers of Tecnogalaxy, today we will talk about the collapse of Netflix and the arrival of a new subscription plan.

Netflix suffered its first subscriber loss in more than a decade, plummeting its shares by 25%.

THE COLLAPSE OF NETFLIX

As many as 200,000 subscribers during the January-March period left the platform, according to its quarterly earnings report. It’s the first time Netflix subscribers have dropped since streaming service became available in most parts of the world outside of China for six years. This year’s decline was partly due to Netflix’s decision to withdraw from Russia to protest the war against Ukraine, resulting in the loss of 700,000 subscribers.

Netflix has acknowledged that its problems are deeply entrenched by predicting a loss of another 2 million subscribers during the April-June period. If the stock decline extends, Netflix shares will have lost more than half their value, wiping out about $150 billion of wealth to shareholders in less than four months.

Netflix hopes to reverse the trend by taking measures it has resisted previously, including blocking account sharing and introducing a low-priced, ad-supported version of its service. Analyst David Wagner said it is now clear that Netflix is up against a massive challenge.

THE PREVIOUS COLLAPSES

Netflix has absorbed the biggest blow since losing 800,000 subscribers in 2011, the result of plans unveiled to start paying separately for its then-fledgling streaming service, which had been provided for free bundled with its traditional DVD service by mail. The customer’s backlash to that move prompted an apology from Netflix CEO Reed Hastings for failing to run the spin-off.

The last loss of subscribers was far worse than expected by Netflix’s management for a conservative gain of 2.5 million subscribers.

It marks the fourth time in the last five quarters that Netflix subscriber growth has fallen below the previous year’s earnings, a malaise that has been amplified by stiffer competition from well-funded rivals like Apple and Walt Disney. The setback follows the company’s addition of 18.2 million subscribers in 2021, the weakest annual growth since 2016. This is in contrast to an increase of 36 million subscribers in 2020 when people were locked away at home and hungry for entertainment, something that Netflix was able to get quickly and easily deliver with its stock of original programming.

Among other things, Hastings confirmed that Netflix will start cracking down on subscriber password sharing that has allowed multiple families to access its service from a single account, with changes likely to be introduced over the next year. The company in Los Gatos, California, estimated that about 100 million households worldwide are watching its service for free using the account of a friend or another family member, including 30 million in the United States and Canada. “Over 100 million families are already choosing to watch Netflix,” said Hastings. “They love the service. We just have to be paid to some extent for them”.

To stop the practice and push more people to pay for their accounts, Netflix has indicated that it will expand a test introduced last month in Chile, Peru and Costa Rica allowing subscribers to add up to two people living outside their families to their accounts for an additional fee.

Netflix closed March with 221.6 million subscribers worldwide. The decline in subscribers cut Netflix’s finances in the first quarter, when the company’s profit fell 6% over last year to $1.6 billion, or $3.53 per share. Revenue increased 10% over last year to almost $7.9 billion.

With the pandemic easing, people have found other things to do and other video streaming services are working hard to attract new viewers with their award-winning programming.

THE PLAN OF NETFLIX

The streaming giant is exploring the possibility of adding advertising in the “next year or two,” chief Reed Hastings said during a call on profits.

Mr Hastings said that advertising would allow for a “lower price”, although the company has also increased the price of its subscription several times recently. Netflix has never included advertisements in its app, instead allowing users to watch videos instantly and without advertising interruptions. But he said that advertising is now an “exciting opportunity” as the company faces growing concerns about its growth. “Those who followed Netflix know that I was against the complexity of advertising and a huge fan of subscription simplicity,” Hastings said during the call.

“In terms of profit potential, surely the online ad market has advanced and now you don’t need to incorporate all the information about the people you were used to,” Hastings said in the phone call. “We can stay out of it and be really focused on our members, creating that great experience”.

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