INSIGHT: Shared password, suspension in Russia… how Netflix lost 200,000 subscribers

On Tuesday, Netflix said it lost 200,000 subscribers in the first quarter of 2022, citing the prevalence of household sharing accounts and growing competition as major causes.

It was the first time in a decade that the streaming giant would record membership loss. The company still has a global share of about 221 million subscribers.

In its quarterly earnings for the first quarter of 2022, the streaming television company said “our revenue growth has slowed considerably”.

“In the near term, though, we’re not growing revenue as fast as we’d like,” the company said.

This decline comes as Wall Street analysts had been bracing up for the streamer to add about 2.5 million new customers.

The company’s revenue rose 9.8 per cent to $7.8 billion from $7.1 billion in the corresponding period in 2021 — down from its 10.3 per cent forecasted growth rate.

After Netflix reported its subscribers’ loss, the streaming company’s shares fell 35.1 per cent at the close of trading on Wednesday.

On Thursday, the company’s shares declined further by 13.53 per cent to $212.66 as at 16:00 GMT+1.

WHY? 

Netflix also identified intense competition from competitors like Amazon and YouTube as a major issue — even as many traditional entertainment companies have taken on the streaming and many new streaming platforms have also launched.

It also said noted that password sharing by subscribers was a limiting factor to growing membership in many markets.

“Second, in addition to our 222m paying households, we estimate that Netflix is being shared with over 100m additional households,” Netflix said.

Furthermore, the streaming giant said technological barriers like data costs and lack of uptake of connected TVs, among others, were another issue.

Lastly, it also decried inflation, COVID-19 and the war in Ukraine as part of the reasons for losing its subscribers.

SERVICES SUSPENDED IN RUSSIA 

After Russia launched its long-dreaded offensive in Ukraine on March 24th, 2022, Western allies thought it wise to impose heavy sanctions on the Kremlin to weaken its economy.

As such, multinational firms, including tech giants, shipping companies, oil and gas firms, and streaming companies, were compelled to suspend operations in Russia.

In March, Netflix suspended its service and future projects and acquisitions in Russia.

Reacting to the development, Russian subscribers of Netflix had filed a class-action lawsuit against the streaming platform — seeking $730,000 as compensation for non-economic damages and a fine equal to 50 per cent of the amount awarded by the court.

In its 2022 first-quarter report, the streaming giant reported that its decision to pull out of Russia led to the cut off of 700,000 subscribers in the country.

Already, Netflix had earlier refused to air Russia’s state-owned TV channel, defying a regulation that would require it to distribute state-backed channels — including Channel One, which has “close links to the Kremlin”.

The regulations require media platforms with more than 100,000 subscribers in that country to distribute 20 free-to-air entertainment and news channels.

According to the streamer, if not for its losses in Russia following Ukraine’s invasion, it would have added 500,000 subscribers for the first quarter of the year.

NETFLIX INCREASED SUBSCRIPTION PRICES IN UK, CANADA

In January, Netflix had raised its monthly subscription price in the United States and Canada.

In its stakeholders’ letter, the streaming giant acknowledged that this move impacted its subscribers’ fall.

In the US and Canada (UCAN), its subscribers declined by 640,000, and it was “largely the result of our price change which is tracking in-line with our expectations and is significantly revenue positive”.

In Europe, the Middle East, and Africa (EMEA), Nigeria inclusive, the company lost 300,000 subscribers. In its report, the streaming company said it saw a slowdown in its business in central and eastern Europe in March, coinciding with Russia’s invasion of Ukraine.

MOVES TO CRACKDOWN PASSWORD SHARING 

To bolster growth, the California-based company said it is considering a lower-priced ad-supported tier and a crackdown on password sharing.

“So early last year, we started testing different approaches to monetize sharing and, in March, introduced two new paid sharing features, where current members have the choice to pay for additional households, in three markets in Latin America,” Netflix said.

The company forecasted it would shrink by another 2 million customers in the second quarter of the year.

Unlike Netflix, Disney+, a top streaming company, recorded 11.8 million new subscriptions in the first quarter of 2022.