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After a decade of meteoric growth that shook Hollywood to its core, Netflix has run into a wall.
The streaming service lost 200,000 customers in the first quarter, according to a statement on Tuesday after the close of US markets [Wednesday morning AEST], the first time the company has shed subscribers since 2011. Netflix also projects it will lose another 2 million customers in the current second quarter, setting up its worst year ever as a public company.
Investors, analysts and Hollywood executives had been bracing for the company to report a sluggish start to the year, but still expected Netflix to add 2.5 million customers. The shares, already down more than 40 per cent this year, tumbled 23 per cent in after-hours trading.
Netflix has run into a wall with its subscriber numbers.Credit:Chris Ratcliffe
Netflix management pointed to four causes, including the prevalence of password sharing and growing competition. The company said there are 100 million households that use its service and don’t pay for it, on top of its 221.6 million subscribers. The company is experimenting with ways to sign up those viewers.
“Our relatively high household penetration -- when including the large number of households sharing accounts -- combined with competition, is creating revenue growth headwinds,” management wrote in a letter to shareholders.
The results will have ramifications for all of the big entertainment companies. After watching millions of customers abandon pay TV for streaming, US entertainment giants have merged and restructured to compete with Netflix in streaming. Investors encouraged this strategic shift, buying shares in companies like Disney that demonstrated a commitment to streaming.
Late entrants
Netflix’s troubles will cause investors to question whether the later-arriving media companies will sign up enough customers to justify all the money they are spending on fresh programming.
Co-Chief Executive Officers Reed Hastings and Ted Sarandos had dismissed the company’s recent slowdown in growth as a speed bump related to the pandemic, which accelerated its growth in 2020. But its subscriber acquisition has slowed for a year and a half, and the company hasn’t reverted to pre-pandemic levels.