SAN FRANCISCO, United States —
Netflix shares lost a quarter of their value Tuesday after the company revealed its
ranks of subscribers shrank in the first quarter of this year.
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It was the first time in a decade that the leading
streaming television service had lost subscribers. The company blamed the
quarter-over-quarter erosion on the suspension of its service in
Russia due to
Moscow’s invasion of Ukraine.
Netflix ended the first quarter of this year with
221.6 million subscribers, slightly less than the final quarter of last year.
The
Silicon Valley tech firm reported a net income
of $1.6 billion in the recently ended quarter, compared to $1.7 billion in the
same period a year earlier. Netflix shares were down more than 25 percent to
$259.30 in after-market trades that followed the release of the earnings
figures.
Netflix believes that factors hampering its growth
includes subscribers sharing their accounts with people not living in their
homes.
The streaming giant estimated that while it has
nearly 222 million households paying for its service, accounts are shared with
more than 100 million other households not paying subscription fees.
“When we were growing fast it wasn’t a high
priority, and now we’re working super hard on it,” chief executive Reed
Hastings said of account sharing during an earnings call.
“These are over a hundred million households that
already are choosing to view Netflix; they love the service, we’ve just got to
get paid in some degree for them.”
Netflix is testing ways to make money from people
sharing accounts, such as by adding a feature that lets subscribers pay
slightly more to add other households.
“If you’ve got a sister, let’s say that’s living in
a different city, and you want to share Netflix with her — that’s great,” chief
product officer Greg Peters said on the earnings call.
“We’re not trying to shut down that sharing, but
we’re going to ask you to pay a bit more to be able to share with her.”
Another factor crimping Netflix’s growth is intense
competition from titans such as
Apple and Disney.
Inflation squeeze
Netflix and its rivals in
streaming television are also up against a rate of inflation that has people
likely taking stock of how many entertainment subscriptions they have racked
up, according to analyst
Rob Enderle of Enderle Group.
“With inflation taking hold, people are starting to
watch their pennies,” Enderle said. “You get a situation where people are
thinking through the subscriptions they have and the subscriptions that they
keep.”
A big player in the market like Netflix will find it
hard to grow in that kind of economic environment, especially in a market like
the US where it is deeply penetrated, Enderle told AFP.
Netflix recently announced subscription price bumps
in the US, with the basic option now costing $9.99, and the most expensive
going up to $19.99.
Netflix is looking at possibly adding a lower-priced
subscription tier subsidized by advertising, a model that Hastings had long
snubbed.
“It’s pretty clear that it’s working for Hulu,”
Hastings said.
“It you still want the ad-free option, you will be
able to have that. If you’d rather pay a lower price and you’re ad-tolerant,
we’re going to cater to you also.”
Weaving ads into Netflix for revenue is “inevitable”
given the recent earnings figures, said Upholdings portfolio manager Robert
Cantwell.
The streaming television race is heating up, with
Disney showing earlier this year that it was closing the gap with market leader
Netflix, whose stride has slowed.
Like the Prime video streaming service fielded by
Amazon, Disney is copying Netflix’s tactic of investing in local content that
appeals to the language, culture and tastes in respective international
markets.
Netflix has made that
approach work, backing original blockbusters such as “Squid Game” from South
Korea and France’s “Lupin”.
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