Netflix is Losing Subscribers

• In Netflix's Q1 2022 report, they reported a loss of 200,000 subscribers, and they are projected to lose another two million subscribers by the end of Q2.
• In their letter to shareholders, CEO Reed Hastings cited password sharing as the primary cause of their subscriber decrease. 
• Netflix plans to resolve the password-sharing issue by offering paid share plans; the pilot program is being tested by Netflix users in Chile, Costa Rica, and Peru.

Over the past decade, Netflix has seen consistent growth in its subscriber count due to its award-winning TV shows and movies. (They claimed that over 142 million accounts watched Squid Game within the first month.) As a result, Netflix has been the predominant company for streaming series and movies. However, as competition rises, among other factors, their revenue growth and new subscribers count have slowed considerably recently. 

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In their Q1 2022 report, Netflix lost 200,000 subscribers, and the company reported it is projected to lose another two million subscribers by the end of Q2. The unexpected loss of subscribers shook Wall Street, with the stock price plummeting by more than 35% on the date of the announcement, April 20, 2022.

Reasons Why Netflix Is Losing Subscribers

In their letter to shareholders and during a Q1 earning interview, Netflix CEO Reed Hastings said password sharing was one of the main reasons the company saw subscriber loss in the past quarter. 

Hastings stated that nearly 30 million accounts in the United States and Canada are password sharing. Hastings' meaning behind this message is that those using another person's account to watch movies are not paying a service fee to Netflix. As a result, the sharing ultimately affects the amount of revenue Netflix earns since many viewers are using their service for free.

Ironically, Netflix initially promoted password sharing, as seen in this tweet back in 2017; however, a lot can change in five years, and desperate times call for desperate measures.

Another reason Netflix is losing subscribers is due to the increase in competition within the streaming service industry and those competitors' quality, original content that is consistently being released. The numerous services are all competing for the eyes of consumers. Many, such as Disney+ and HBO Max, are producing their own original content or buying the rights to popular shows and movies that are exclusive to their network. As a result, subscribers leave Netflix and join the streaming service with the majority of their favorite content.

In addition, gaining new subscribers and retaining current ones is key to increasing revenue. Although it is estimated that Netflix spent $5.2 billion on originals in 2021, the company is no longer the only service to produce original content. As a result, subscribers are starting to feel they are overpaying for the streaming service compared to others that also offer great content. 

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Netflix charges a monthly subscription fee of $9.99 for the Basic plan versus Hulu's basic plan for $7 and Peacock Premium for $4.99 per month. Therefore, subscribers also switch to a competitor they believe has better options at a more reasonable price.

Netflix's Crackdown on Password Sharing

The lost subscribers concern many Netflix executives, as the reduction in subscribers means there is less revenue, making it difficult for the company to remain profitable and competitive. 

In Netflix's letter to their shareholders, there was no mention of how they would cut expenses to remain profitable, but they mentioned cracking down on password sharing. Currently, they are running a pilot program in Chile, Peru, and Costa Rica, where they offer paid sharing plans to their subscribers to reduce password sharing and increase revenue. 

Initially, Netflix provided high-quality content at a low price and promoted password sharing. However, as time went on, the company became more focused on its bottom line, as it continued to increase its price annually. As a result of the numerous changes and more alternatives emerging in the industry, it made it difficult for Netflix to remain competitive, causing them to lose subscribers and have lower revenue levels. 

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