In the first quarter of 2022, Netflix reported its first loss on subscriptions in 11 years. While the loss refers to just 200,000 subscribers in a company that has more than 221 million of them, the result was enough for its shares on the stock market to plummet 24% on Tuesday.
The setback for the pioneering content-on-demand platform has been attributed to market saturation, as well as its weakened catalog of offerings, neglect of demographics outside teenage audiences, and even the war in Ukraine.
To be sure, Netflix management is paying dearly for taking sides on the Russian invasion of Ukraine. In protest of the invasion, the company suspended service in Russia at the beginning of March and it has canceled all projects slated for production there. As The Washington Post reported, Netflix thereby immediately lost some 700,000 subscribers.
Of further concern to investors is that the platform has fallen far short of its projected growth of 2.5 million new subscribers in the last three months of the year. According to data announced by the company on Tuesday, it acquired only 500,000. Calculations for next June are even less hopeful, with a loss of two million subscribers anticipated.
Notably, the subscriber decline is also accounted for by editorial decisions. Netflix continues to rule over the on-demand content market within which it is a pioneer, but its competitors are becoming more numerous. For example, the streaming service SkyShowtime will arrive in Spain and 22 other European countries before the end of the year, offering content from Peacock, Paramount + and Nickelodeon, among others.
With this proliferation of new services for on-demand content, Netflix has lost out on a number of critical offerings. In 2020 Friends, a series that appears permanently on “most viewed” was removed from the provider as its creator, Warner, incorporated the series into its new HBO Max platform.
Then there are the moves by Disney. Netflix successfully made and launched several TV shows about Marvel superheroes in recent years, but when Disney began development of Disney+, its own content-on-demand service, it started to lose hit series such as Daredevil, Jessica Jones, Iron Fist, Luke Cage, The Punisher and The Defenders. From this point on, no more new seasons of these series could be produced by Netflix and soon it will not be able to offer subscribers the old ones either. They will become part of the competitor’s offer in all international markets throughout 2022.
As such, the Netflix catalog now is based largely on its original releases, which fall mostly into romance (e.g. Bridgerton) and productions for a teenage audience (Elite), and therefore has less variety than say, HBO Max, where the youth-oriented Euphoria exists comfortably alongside series which serve a more diverse audience such as Better Things or Tokyo Vice.
From shared subscriptions to ad-supported content
Netflix managers have said one of the reasons behind the platform’s slowed growth is users sharing their login details with others, estimating there are more than 100 million households enjoying the service without directly paying for it. To curb this, the company has begun to require authentication from some users in the United States that they are logging in from the home of the account owner.
With plans for a 180-degree turn in company strategy on the horizon, Netflix is considering measures it previously refused to contemplate. In a recorded interview released after Tuesday’s quarterly results announcement, founder Reed Hastings said they were looking at offering cheaper subscriptions with the cost offset by ads, aimed at “consumers who would like to have a lower price and are advertising tolerant.”