- 970,000 left platform in Q2, 200,000 in Q1
- Ads-supported tier and account sharing clampdown lined up
- Stock has jumped 24% in past week
It’s the sign of the times when investors rally behind Netflix (NFLX:NASDAQ) stock despite losing nearly a million subscribers in the second quarter.
After losing 200,000 subscribers in Q1 this year (to 31 Mar), Netflix said overnight that it had seen another 970,000 leave the streaming platform in Q2, yet that’s less than half as many as Netflix had predicted it would lose.
That saw the share price surge 7.5% in after-hours trading. Throw in a run of positive days for the stock pre-update, Netflix, at the implied $216.76 when Wall Street reopens later today, will have jumped 24% in a week.
But before anyone gets too carried away, there’s still plenty for sceptics to get their teeth into, and for Netflix to overcome. This is, after all, the first time ever that subscriber numbers have declined for two quarters in a row.
STREAMING SATURATION
The big worry is that the streaming market has quickly become saturated. On average US households were signed up for 4.7 streaming services in Q2, the most ever, albeit unchanged from the previous quarter, according to research company Kantar.
That means Netflix is fighting a growing number of streaming services for the leisure time of consumers - including things like gaming, social media time, reading, regular sports and hanging out with friends. Competition has never been this intense.
Rising to the challenge, Netflix has a three-pronged plan. It’s already started cracking down on account sharing, charging extra fees for non-household users.
Password sharing is also facing a clampdown, with regional markets to be targeted. In March, the company said it would start cracking down on password sharing in three Central and South American countries, and expanded that plan to five more countries this week.
More than 100 million households are said to use a Netflix account they don’t pay for, and the streamer has said that’s a major drain on subscriber growth.
CHEAPER SUBSCRIPTION WITH ADS
Launching a cheaper, ad-supported tier is also incoming, with advertisers said to be lining up to get their products and services in front of millions of people that watch nothing but streaming platforms. Netflix also hopes that this might become an option for consumers struggling to pay for standard Netflix subscriptions as living costs soar and money gets tighter.
Lastly, it needs to be less reckless in its content spending and concentrate more on quality over quantity to stand out from the crowded streaming space. Some of its biggest hits; ‘Stranger Things’, ‘Queen’s Gambit’, ‘Squid Games’, needed no Hollywood blockbuster names to garner huge fan bases.
Last year it invested $17 billion in content and this figure is likely to be matched this year and next. But the entire industry is hoping to trim content spending going forward, so there is hope.
In the meantime, Netflix predicted that it’ll return to subscriber growth this quarter (30 Sep). Investors will be watching.
