Netflix’s first quarter results are out. And they don’t look good. The streaming giant lost 200,000 customers in the March ending quarter, the first time it has shed subscribers since 2011.
The company also projected that it will lose another two million customers in the current quarter. This is a massive setback for a company that has been adding roughly about 2.5 million users every month.
A surprise drop in subscriptions has the video-streaming company considering changes to its service that it has long resisted. The change it plans to make are minimizing password sharing and creating low-cost subscription options. The latter will be made possible by bringing in advertisers to the platform, a move that the FAANG company bucked for a long time.
The changes announced late Tuesday are designed to help the company regain momentum it lost over the past year, and hopefully assuage fears of the company’s shareholders.
Shares of the streaming giant, already down more than 40% this year, tumbled as much as 27% to $256 in after-hours trading after results were announced. If the drop extends into Wednesday’s trading session, the stock will have lost over half of its value so far this year -- wiping out about $150 billion in shareholder wealth in less than four months.
Netflix is at an important juncture, a very different one from the time when it competed against video-rental firm Blockbuster. The market for streaming videos and movies has since exploded, and its rivals Amazon Prime, Disney Plus and HBO are offering equally good content at a competitive price.
Customer needs and preferences have also changed. For instance, one Netflix user posted on social media that they would prefer to view content related their geography for the premium they pay in that market. The post was shared by a U.S. customer.
On the other hand, Netflix’s subscriber growth is accelerating in Asian markets, where it charges slightly lesser monthly fees. The company has to find a balance on how it will effectively map content to users considering geographic interests.
Reed Hastings, co-founder of Netflix, in his letter to shareholders said the company’s focus will be on monetising 100 million plus households who use a shared password.
“This is a big opportunity as these households are already watching Netflix and enjoying our service,” he noted.
In March, the company started testing ‘charging a fee’ option to those who share another user’s account. Perhaps, it can consider asking for payment per views, like selling tickets for a movie that streams on Netflix.
While the company fixes its short-term subscriber growth problem, it will also need to broadly think of the content it plans to map to users in different geographies.
Now that Mr. Hastings has started to challenge the status quo at Netflix, there are a multitude of options to think of and explore.
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