IN JANUARY NETFLIX it warned investors that it expected to add just 2.5 million subscribers in the next quarter, triggering a sell-off that knocked almost 30% off its share price. On April 19, the video streamer admitted the reality was worse: Netflix lost 200,000 customers in the period, its first net drop in more than a decade. The firm expects to lose another 2m between April and June. By April 20, it was worth 35% less than the day before and 63% less than at the beginning of the year, wiping out nearly $170 billion in market value and making it the worst-performing stock in the yes&P index 500.
Subscribers in the United States turned away after price increases that made Netflix the most expensive major streaming service at $15.49 a month. Another 700,000 accounts were lost when Netflix pulled out of Russia. Even in Latin America, where it had been growing rapidly, it lost members. And while it gained 1.1 million new ones in Asia, that’s less than the same period last year.
Peak economic conditions are not helping. Inflation is eating into household budgets; This week, Kantar, a research firm, reported that overall streaming penetration in Britain fell in the latest quarter. Consumers also have more options. Hollywood is piling into streaming alongside Silicon Valley, increasing competition for both customers and content.
The most worrying thing for Netflix is that the number of potential streaming customers may be less than it thought. The firm has long said it is considering the world’s 1 billion homes with broadband. It now acknowledges that factors such as the slow adoption of smart TELEVISIONExpensive emails and data are barriers to reaching many of them. MoffettNathanson, an analyst firm, puts the actual potential streaming market at more than 400 million households. With 222 million subscribers, plus roughly 100 million households using others’ passwords, Netflix is about 80% of the way there.
Reed Hastings, the boss of Netflix, promises to crack down on password sharing to make some opportunists give up. To protect margins, Netflix will control spending on content. More dramatically, “over the next year or two” it will launch a cheaper tier with ads, to attract customers with lower budgets. He has long shunned advertising, which risks limiting creative freedom and cannibalizing existing subscriptions. Ad industry giants Alphabet, Amazon and Meta are “tremendously powerful” so “in the long run, there’s no easy money there.” Who says? Mr. Hastings, two years ago. ■
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This article appeared in the Business section of the print edition under the headline “Commercial Brake”