By: Nick Gambino
Netflix reported a loss of 970,000 subscribers in their second quarter which is less than even they forecasted. They expected to lose somewhere on the order of 2 million subscribers, but thanks to Stranger Things 4 that was slashed in half.
The streaming giant’s exponential growth year after year was a sign of the times, out with the old TV and movie models and in with the new. Though, if my loose interpretation of the law of gravity is to be believed, everything that goes up must come down. This is the year when Netflix starts to come down.
The first sign that things weren’t going to keep going on an upward trajectory was back in April when they announced they lost 200,000 subscribers. This resulted in shares plummeting. But it was probably the PR course correct they needed. Now, it looks like expectations are being better managed.
“Our challenge and opportunity are to accelerate our revenue and membership growth by continuing to improve our product, content, and marketing as we’ve done for the last 25 years, and to better monetize our big audience,” Netflix said in an investor letter on Tuesday. “We’re in a position of strength given our $30 billion-plus in revenue, $6 billion in operating profit last year, growing free cash flow, and a strong balance sheet.”
Netflix is clamping down and changing up certain aspects of its business. For one, they are trying to do away with unauthorized password sharing, something they’ve been turning a blind eye to for years. They intend to start charging for convenience. Right now, in Latin America, they’re testing two different ways of going about this – charge for adding a member or charge for adding a household. It was about $3.
Additionally, they’re looking at an ad-supported plan, something they’ve never done before. While Hulu got its start that way, Netflix always seemed to push back on the idea. Now, it looks like they have no choice. If people are willing to pay less for a plan with ads, then why not provide it? It makes it more accessible. While I can’t stand ads, I get the need for such a plan.
Netflix has a lot of competition these days, very different from just a decade ago when there was virtually none. This next year will prove whether they have what it takes to stay on top.