Netflix Reports Less-Bad Results, Loses Nearly 1M Subscribers

Netflix Inc. suffered two consecutive quarters of subscriber losses for the first time in its history, and said some key steps it is taking to boost revenue and subscriber growth wouldn’t happen until next year, reports The Wall Street Journal.

The company lost 970,000 paid subscribers in the June quarter, fewer than the 2 million it had expected to lose. Netflix estimated it would add 1 million net new subscribers in the current quarter.

“We’re talking about losing 1 million instead of losing 2 million, so our excitement is tempered by the less-bad results,” Netflix Chairman and Co-Chief Executive Reed Hastings said in an analyst interview to discuss the results. “Losing a million and calling it success” is tough, he said. “But really, we’re set up very well for the next year.”

The company is contending with growing competition from rival streaming services, a saturated U.S. market and rising inflation that observers say could crimp spending on entertainment. To boost subscriptions and revenue growth, Netflix is working on launching a lower-price, ad-supported option for consumers, and it plans to crack down on password-sharing by charging households to share accounts.

In a letter to investors Tuesday, the company said those moves are scheduled to go into effect next year. Netflix executives said efforts to limit password sharing would have a more immediate impact on revenue than the ad-supported tier of service, which would take longer to materially help the company.

Meanwhile, executives stressed the importance of generating hit shows and movies and aggressively marketing content likely to build buzz and draw in new customers.

WSJ Graphic

The streaming giant also has been working to cut costs. The company laid off about 5% of its workforce in recent months, according to a person familiar with the matter. Netflix on Tuesday said cost-cutting measures resulted in about $70 million of severance costs and an $80 million noncash impairment of some real estate leases.

Netflix’s revenue came in lower than expected, growing 8.6% to about $8 billion, while operating income fell 15%. Net profit was $1.44 billion, up 6.5% from $1.35 billion a year earlier. Netflix said foreign-exchange fluctuations weighed on revenue and profitability, and projected that revenue growth would slow to 4.7% in the third quarter.

After years of breakneck growth fueled by international expansion, Netflix saw the pace of customer additions slow over the past couple of years as it faced competition from an array of new entrants, including Walt Disney Co.’s Disney+, Warner Bros. Discovery Inc.’s HBO Max and Apple Inc.’s Apple TV+.

Netflix last week said Microsoft Corp. would supply technology to facilitate the placement of video ads. The company has said it is trying to create an ad experience that is less disruptive than ads on traditional TV, but it hasn’t specified how many ads per hour of content the new service will feature or what format they might take.

When it comes to limiting password sharing, Netflix said it was working on monetizing the 100 million-plus households that are watching Netflix without directly paying for it. It said it 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,” the company said in its letter.