Disaster has been averted at Netflix.
The streaming giant said in its earnings report Tuesday that it lost nearly a million subscribers in the second quarter. That’s the biggest subscriber loss in the company’s history, but far less than the two million it forecast during its dismal first-quarter report in April.
When Netflix announced it was losing 200,000 subscribers in the first quarter and expected to lose many more in the second, it suggested to many in Hollywood and on Wall Street that the hectic days of endless growth in the streaming business had come to an end. .
The company still had a difficult three months, but revenue grew 9 percent to $7.9 billion, a number that would have been higher had the dollar not depressed the value of currencies around the world. Overall, Reed Hastings, a Netflix co-chief executive, called it “less bad results.” He added that “it’s hard to lose a million subscribers and call it a success.”
Netflix, which now has about 220.7 million subscribers worldwide, told investors it could add one million in the next quarter. And Mr. Hastings is optimistic about the future of streaming. “It’s the end of linear TV in the next five, ten years,” he said during a recorded earnings call after the close of trading on Tuesday.
In a letter to shareholders, Netflix said it would continue to focus on delivering streaming content to subscribers and not worry about other potential revenue streams as its primary competitors do.
“This freedom means we can offer major movies straight to Netflix, without the need for extended or exclusive cinema windows, and give members the ability to watch TV if they want to, without having to wait for a new episode to come out every week. says the company. said. “This focus on member choice and control affects all aspects of our strategy, which we believe will deliver significant long-term business benefit.”
Netflix has spent the past three months adapting its business to better meet the challenges it faces for the rest of the year. The company laid off about 450 employees. (It had $70 million in redundancy costs as a result of the downsizing.) In April, it announced it would introduce a cheaper subscription tier that will include ads — it reverses its long-held stance of never having commercials on its service. Netflix plans to begin its lower-cost ad tier in early 2023 in a “handful of markets where ad spend is significant,” which development analysts are cautiously optimistic about.
“In addition to additional subscriptions, ads will also benefit Netflix in the form of a new revenue stream from brands eager to reach the platform’s approachable audience,” said Mike Proulx, vice president at Forrester. “But scaling up the ad activity takes time.”
And Netflix said it would step up its crackdown on password sharing to effectively monetize the 100 million users Netflix said were using its service without paying for it. Netflix said Tuesday it had introduced two approaches to this in Latin America, to find out which one is more effective. One allows customers to “add additional member” and the other allows users to “add a home” for an additional $3 per month.
“Not only were the losses not that bad, but the expectation of growth in the third quarter, even if it is modest growth, is probably quite encouraging for people,” said Richard Greenfield, general manager at LightShed Ventures, adding that the company statement that significant free-cash flow growth in 2023 was the top news of the quarter.
“They’re basically saying that while everyone else in the industry is losing billions of dollars, they’re not only making money in 2022, but they’re going to make a lot of money in 2023 and beyond,” said Mr. Greenfield.
Business issues aside, Netflix received fewer Emmy nominations this month than its main rival, HBO, despite more programming than the cable network and its streaming offshoot, HBO Max. HBO received 140 nominations for Netflix’s 105, a reflection of the difficulty of continuously producing quality entertainment.
Wall Street soured the streaming giant after its first quarter report, with Netflix’s shares falling 46 percent since April and nearly 70 percent since the start of the year.
Shares of Netflix rose more than 7 percent in after-hours trading on Tuesday.
In the second quarter, Netflix lost 1.3 million subscribers in the United States and Canada, compared to a loss of 400,000 for the same period in 2021. It increased revenue by 10 percent and said subscriber retention had improved over the quarter. .
Revenue grew 23 percent in the Asia-Pacific region, where the company gained 1.1 million subscribers. In Latin America, subscriptions remained the same, but sales increased by 19 percent year-on-year.
The service was particularly bolstered by the strong performance of “Stranger Things” season 4, which Netflix said had generated 1.3 billion hours of viewing, the most for an English-language show. It also benefited from a renewed interest in the songs “Running Up That Hill” by Kate Bush and “Master of Puppets” by Metallica, which were featured on the show.
Netflix’s film profits were more modest. “We are making good progress in film,” the letter said. “Hustle,” Adam Sandler’s basketball film, sparked the most user interest in the quarter, with 186 million hours of viewing. “Senior Year”, featuring Rebel Wilson, captured the user’s attention for 161 million hours. The company is investing more in animation and announced on Tuesday that it has acquired the Australian animation studio Animal Logic.
“I think it’s very important for consumers in tough economic times to see that Netflix has tremendous value,” said the other co-chief executive, Ted Sarandos, in response to a question about how the company sees itself holding up in an economic downturn. . He pointed to the film “The Gray Man”, which will appear in the service on Friday.
“This is a huge, big-budget action movie that people would normally have to spend a lot of money to go and watch, and it’s premiering on Netflix,” he said. (The film was released in about 450 theaters last week.)
Despite the optimistic forecast for the third quarter, some analysts remain concerned that Netflix’s series and movies for the rest of the year will suffer compared to its competitors’ offerings.
“For me, the big issues are the quality of the content,” said Matthew Harrigan, an analyst at Benchmark. He pointed to HBO, which will release its ‘Game of Thrones’ prequel, ‘House of Dragon’ in August, while Amazon will unveil ‘Lord of the Rings: The Rings of Power’ in September.
“‘The Crown’ on Netflix is probably the most notable Q4 show they have,” he added.