Netflix In Denial Blames Password Sharing Not Price Hikes For First Subscriber Loss In Years

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For the first time in 10 years, Netflix expects to lose subscribers. The streaming platform says it lost 200,000 subscribers in the first quarter of 2022.

Netflix shared a letter with its shareholders that announced its revenue growth had "slowed considerably" globally. It stated that it had lost 200,000 subscribers from the service in the first quarter, and expects to lose another 2 million in the second quarter. The company does not point to a recent price hike for the service as the main factor, but rather says password-sharing, the war in Ukraine and subsequent sanctions stemming from the conflict, as well as other factors as the culprits.

"It's increasingly clear that the pace of growth into our underlying addressable market (broadband homes) is partly dependent on factors we don't directly control, like the uptake of connected TVs, the adoption of on-demand entertainment and data costs," Netflix shared with its shareholders in a recent letter. "We believe these factors will keep improving over time, so that all broadband households will be potential Netflix customers."

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Image Courtesy of Netflix

Earlier this year Netflix raised its subscription prices across the board in the U.S. and Canada. A basic plan went up to $9.99 from $8.99 monthly, while the standard plan was upped to $15.49 and the premium plan to $20 a month. On top of the price hikes, the streaming platform also announced they were experimenting with "Extra Sub" accounts that charge customers a fee for sharing their passwords with others outside of the customer's household.

The company originally predicted it would add 2.5 million subscribers this quarter, but instead felt the drop off between the months of January and March. This is perhaps added incentive for Netflix to look into ways to monetize password sharing beyond single households. It estimates that its 222 million paying customers are sharing their passwords with roughly 100 million additional households, including 30 million in the U.S. and Canada.

"Account sharing as a percentage of our paying membership hasn't changed much over the years, but, coupled with the first factor, means it's harder to grow membership in many markets, an issue that was obscured by our COVID growth," the letter shared. "While we won't be able to monetize all of it right now, we believe it's a large short-to mid-term opportunity."

The stock took a nosedive of around 25% following the release of the drop-off in subscriptions, even with the company recording an overall profit of $1.6 billion, or $3.53 per share.

CEO Reed Hastings said on Tuesday that the company is also "open" to offering lower-priced tiers with ads after years of resisting the temptation to do so. Hastings is not a fan of adding commercials to the platform, but said during the earning conference that it "makes a lot of sense" to offer customers a more affordable option. As competition in the media streaming market continues to get more crowded, this may not be a bad idea.

Top Image Courtesy of Netflix