Why has Netflix seen such a dramatic drop in subscribers?
On Tuesday, the streaming giant shocked Wall Street and its shareholders when it announced a 200,000 subscriber drop as part of its first-quarter earnings report. While that number may not seem large compared to the total 222 million paying customers it still has, this is the first time in about a decade that Netflix has seen a loss of subscribers. Additionally, the company projects it will lose 2 million more subscribers in Q2.
Several factors contributed to the company’s growing cancellations, including pandemic production stoppages, a price increase, and the fact there are simply so many competitors vying for customers’ streaming dollars.
The pandemic bubble burst
The first two years of the pandemic proved a boon to Netflix as millions of people stayed home and binged original series like “Tiger King” and “The Queen’s Gambit.” But as people began going back to work — and back to theaters — they had far less time to devote to watching the streamer’s latest offerings. Despite the return of wildly popular “Bridgerton” in March and the promise of a second season of “Squid Game,” Netflix’s biggest series ever, total subscribers dropped in the first three months of 2022.
Pandemic production shutdowns
While millions were busy bingeing Netflix at home, creating new content during a pandemic with constantly changing COVID protocols wasn’t easy. Los Angeles production on all Netflix originals, including “Stranger Things” and “Russian Doll,” was shut down in March 2020 and again in January 2021. The fourth and final season of “Stranger Things” finally debuts in May, nearly three years after Season 3 was released. The second season of “Russian Doll” dropped on Wednesday, more than three years after its hit first season. What are fans to do when their favorite series aren’t releasing new seasons? Cancel, save a bit of money or spend it on another service that is releasing a show you love, and return to Netflix when your beloved show does too. That rate in which consumers cancel their subscriptions is called churn.
That January price hike
Following Netflix’s rate hike on all subscriber tiers in January, with basic plans now going for $9.99 a month and a top tier of $19.99, the streaming giant saw a gigantic jump in cancellations. Antenna data shows that 3.6 million people canceled their Netflix service in Q1 2022, a full 1 million more than both Q1 2021 and Q4 2021. Churn increased 0.95 points month-over-month in January, according to Antenna. By the end of March, Netflix’s active monthly churn rate was 3.3%, slightly less than the 3.6% spike in cancellations in September 2020 caused by controversy over the film “Cuties.”
New subscribers aren’t showing up
According to Similarweb’s insights report on Netflix web traffic data, cancellations outpaced sign-ups in Q1 2022. Global sign-ups declined 16% in the first quarter, while cancellations were up 61% in March. Netflix’s percentage of new users is down from two years ago and it has the lowest percentage of new average unique visitors among its competitors, indicating that Netflix could struggle with subscription growth moving forward. There was, however, a slight Oscars sign-up bump in late March as viewers checked out nominated films “Don’t Look Up” and “The Power of the Dog.”
Pulling out of the Russian market
Like dozens of media companies, Netflix announced on March 6 that it was suspending service in Russia in protest of the war in Ukraine. According to Bloomberg, Netflix stood to lose between 100,000 and 1 million subscribers from the decision. Even if they hadn’t ended service for Russians, they would have had trouble receiving payments as Visa, Mastercard and American Express also suspended business in Russia. The streamer launched in Russia in 2016.
Competition is getting tougher and cheaper
With newer streaming services including Apple TV+ and Paramount+, the exclusive home of Tyler Sheridan’s “Yellowstone” spin-off “1883,” Netflix faces more intense competition than ever for subscribers. And budget-conscious households are increasingly turning to free ad-supported streaming services (FAST) for their entertainment fix. During Tuesday’s earnings announcement, Netflix Co-CEO Reed Hastings said that the company is looking into launching their own lower-priced, ad-supported tier, so that it can compete for affordability.
As Forbes pointed out, almost every other streaming site costs less than Netflix per month. And some of the buzziest shows of 2022 so far, including “Severance,” “Roar,” and “Slow Horses,” are on Apple TV+, not Netflix.
“Competition is fierce, and instead of other services attempting to gain ground on Netflix, it is Netflix that must discover creative strategies to maintain its leading position in the industry,” said Parks Associates contributing analyst Eric Sorensen.
Losing content to Disney+
With the launch of Disney+ in 2019, Netflix lost all rights to any Disney-owned content, except for the TV-MA rated Marvel series “Daredevil,” “Jessica Jones,” “The Punisher,” “Luke Cage,” “Iron Fist,” and “The Defenders.” When those moved to Disney+ on March 16, viewers likely followed. While Netflix’s basic plan rates have gone up to $9.99, Disney+ is still only $7.99 per month.
All that password sharing
What happens when you’ve basically saturated a market and still need to find more revenue? Well, Netflix has announced plans to crackdown on subscribers who share their account with friends and family who don’t live in the same household, a move that could generate more individual accounts, but might also alienate existing subscribers and cause them to cancel. The company will have to walk a fine line.
“Password sharing is both a challenge and an opportunity for the company — and is a substantial potential expansion of its monthly revenue base if the company amicably approaches affected subscribers with easy, affordable options, rather than a punitive and adversarial approach,” said Paul Erickson, Research Director at Parks Associates.
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