Netflix has just reported its first user loss in years. To combat the decrease, the company is preparing to make some changes and cutting costs where it can.
Is Netflix Losing Popularity?
The latest report shows that Netflix lost around 200,000 subscribers in the first quarter this year. It’s the first time the popular service has had a major decrease in paid users. But is it a bad sign for the company? Turns out, Netflix isn’t the only one to suffer. Roku, Spotify, and Disney also faced losses. While 200,000 might not seem like a huge number for such a big service, the company is forecasting another loss in the second quarter. This time, though, the number might reach as much as 2 million. Previously, October 2011 was the only month Netflix lost any subscribers.
“Our revenue growth has slowed considerably,” the company wrote in a letter to shareholders. “Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally. However, our relatively high household penetration — when including the large number of households sharing accounts — combined with competition, is creating revenue growth headwinds.”
The company expects to gain an additional 2.5 million paid users. Although that seems like a major increase, almost a year ago to date, Netflix saw an increase of 3.98 million paid users, which is quite the drastic difference. But the company isn’t stepping down. Instead, it will be endorsing new ideas to try and save the situation.
Changes Coming To Netflix
So, what’s the main reason for the huge subscriber loss? Russia has suspended the service in the country, so 700,000 people lost access to their accounts. The service also increased it’s prices, and not for the first time, which resulted in an estimated 600,000 fewer American and Canadian subscribers.
As mentioned in the stakeholder letter, account sharing is also a factor in lost revenue. There are an estimated 222 million paying households that use the service while over 100 million other households receive their access through account sharing! Since Netflix loses out on so many paid subscribers due to password sharing, the company announced that they would start limiting such work-arounds and sending alerts for those that log in from different households. In future, such activity will likely be prompted to pay an additional fee to continue sharing or to move the non-paying household’s information to a new account.
Netflix is hoping to clear up the picture with its subscribers and revenue. That’s why several changes, such as this one, may be striking the streaming service soon. The company has already cut costs, decreasing staff and cancelling several upcoming projects. The idea has also arisen to add video games to the service’s offerings. But most notably, Netflix is planning on adding advertisements.
Netflix co-CEO Reed Hastings said that more low-paid accounts will be put to work. “One way to increase the price spread is advertising on low-end plans and to have lower prices with advertising,” Hastings said. “Those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription.” Hastings didn’t voice the date for the upcoming changes. However, it’s likely that advertisements won’t be implemented until 2023 or 2024.