Netflix subscriber loss widens, ad tier coming in early 2023

A particular show may have saved Netflix from major losses.

SAN FRANCISCO — Netflix lost nearly 1 million subscribers in the spring amid stiffer competition and rising inflation squeezing household budgets, increasing the urgency behind the video-streaming service’s efforts to introduce a cheaper option with ad breaks.

The drop of 970,000 accounts from April through June, announced Tuesday as part of Netflix’s second-quarter earnings report, is by far the largest quarterly subscriber drop in the company’s 25-year history. However, things could have been far worse, considering Netflix management released an April guidance calling for a loss of 2 million subscribers in the second quarter.

Netflix was likely spared major losses by the continued popularity of Stranger Things, its sci-fi/horror series that debuted in 2016. After the show’s fourth season was released in late May, Netflix said viewers watched a total of 1.3 billion hours of it over the next four weeks — more than any other English-language series in the service’s history.

RELATED: ‘Stranger Things’ Writers Say Spinoff Will Be ‘1000% Different’

The less severe loss of subscribers, combined with an outlook calling for a return to growth over the July-September period, helped push battered Netflix stock up 7% in extended trading after the numbers were released.

Netflix’s April-June decline follows a loss of 200,000 subscribers in the first three months of the year, marking the first time Netflix’s subscriber base has shrunk in consecutive quarters since transitioning from offering DVD-per- Mail rental for video streaming started 15 years ago.

Recognizing potential problems, Netflix began branching out last year, adding free video games to its streaming service.

But that obviously wasn’t enough to spur subscriber growth, prompting Netflix in April to crack down on rampant disclosure of subscriber passwords and take another step once despised by offering a cheaper tier of its service that will include commercial breaks . Without giving further details, Netflix said Tuesday that both the ad-supported plan and crackdown on password sharing will begin early next year. The company didn’t say how much the streaming option with ads will cost.

Netflix took another step towards assembling the ad-supported option last week when it announced it will be working with Microsoft to deliver the commercials.

Losing nearly 1.2 million subscribers in the first half of this year also provides a first contrast to the pandemic-driven growth Netflix experienced in the first half of 2020, when its streaming service added nearly 26 million subscribers.

Despite the downturn, Netflix still made $1.4 billion, or $3.20 per share, in the quarter, up 6% from the year-ago period. Revenue rose 9% from the same time last year to nearly $8 billion.

Netflix ended June with 220.7 million subscribers worldwide, far more than any of its new competitors like Walt Disney Co. and Apple. And in a hopeful sign, Netflix management forecast that its service will add about 1 million subscribers over the July-September period, suggesting the worst of the slump may be over.

Though Netflix’s spring subscriber losses weren’t as bad as investors and management feared, the downturn was a grim reminder of the challenges the Los Gatos, Calif. company faces after a decade of unbridled growth.

Netflix’s stock price has plummeted nearly 70% so far this year, wiping out roughly $180 billion in shareholder wealth. Since then, other video streaming services have made great strides in attracting viewers, with Apple earning accolades for its award-winning offering of TV series and movies, while Disney’s popular offering of family-friendly titles continues to gain traction.

Netflix has hiked prices to help fund its own original programming, just as its highest inflation rates in 40 years have prompted consumers to rein in spending on discretionary items like entertainment.

“Netflix is ​​still a leader in video streaming, but unless it finds more franchises that resonate widely, it will ultimately struggle to stay ahead of its competitors who are chasing its crown,” said Ross Benes, analyst at Insider Intelligence.

RELATED: Netflix Will Rely on Microsoft to Help Deliver Commercials Netflix subscriber loss widens, ad tier coming in early 2023

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