Netflix loses 970,000 subscribers, says ads and new fees are key to recovery

Enlarge Getty Images | Christopher Ames

Netflix yesterday announced a loss of 970,000 paid streaming subscribers in its second quarter revenue after losing 200,000 customers in the first quarter of 2022. The company's paid subscriptions worldwide fell from 221.64 million to 220.67 million in the second quarter, and revenue growth slowed significantly.

This is the first time in Netflix history that the company has reported consecutive quarters of subscriber losses, writes the Wall Street Journal. But the result was better than expected, as Netflix had told investors to expect a loss of 2 million subscribers in the second quarter.

Netflix co-CEO Reed Hastings said on a call with analysts yesterday that 'losing 1 million and calling it a success' is 'tough', but added that Netflix is ​​'very well set up for the next year," according to a Seeking Alpha transcript. The new season of StrangerThings has apparently prevented more subscriber losses.

Netflix's latest forecast indicates that it will add 1 million paid subscribers in the third quarter, bringing the total to 221.67 million. Paid subscriber count peaked at 221.84 million in Q4 2021 after 15 years of steady growth following the company's transition from DVD to online streaming.

Netflix plans ads and account sharing fees in 2023

The earnings report came a day after Netflix unveiled an "additional house tax" being rolled out in Argentina, the Dominican Republic, El Salvador, Guatemala and Honduras. Netflix was already testing "additional member" fees in other countries. In a letter to shareholders, Netflix said it intends to complete a broader rollout of sharing fees next year:

We are in the early stages of monetizing the more than 100 million households currently enjoying Netflix, but not paying directly. We know this will be a game changer for our members. As such, we have launched two different approaches in Latin America to learn more. Our goal is to find an easy-to-use paid sharing offering that we believe works for our members and our business that we can roll out in 2023. We are encouraged by our early learnings and our ability to convert consumers to paid sharing in Latin. America.

Netflix has also provided an update on its plan for an ad-supported tier. "We recently announced that Microsoft will be our technology and business partner, and we're aiming to launch that tier around early 2023," Netflix said. The company previously informed its employees that it plans to roll out the ad-supported tier by the end of 2022.

Netflix says it will continue to offer ad-free plans and that the ad-free tier will be cheaper than the ad-free options. Netflix said the shared account and advertising fee plans are key parts of its strategy to improve revenue growth:

In the near term, a top priority for accelerating revenue growth is to scale and improve our monetization. In the early days of streaming, we kept our pricing very simple with a single plan tier. In 2014, we introduced three price levels to better segment demand. Going forward, we will focus on better monetizing usage through continued optimization of our pricing and tiering structures, as well as adding a new ad-supported tier and lower price.

Netflix has said it hopes to create an adv...