Netflix stock was higher in early trading on Wednesday (July 20), after the company revealed that it lost 970,000 subscribers in its second quarter, an improvement on the company’s prediction of two million lost subscribers which it made in its previous quarterly report. But the drop in subscribers still continues the slide that began in the first quarter.
The streaming giant’s global membership base shrank from more than 221.6 million in Q1 to just over 220.6 million, continuing the decline that began in April when the company announced that it had lost 200,000 members in the first quarter of 2022, a sharp contrast to the 2.5 million it had expected to gain.
Company leadership framed the Q2 subscriber drop as “better than expected” in relation to its forecast in the prior quarter, with CEO Reed Hastings (pictured) referring to the numbers as “less bad results” than management had previously anticipated.
“It’s tough in some ways, losing a million [subscribers] and calling it success, but really we’re set up very well for the next year,” Hastings said in a company interview following the release of the earnings report.
Netflix still reported higher overall revenues, however, rising to US$7.97 billion for the quarter, up 8.6% year-over-year. Diluted earnings per share, meanwhile, was $3.20, up from $2.97 a year earlier and exceeding the company’s guidance forecast.
As with the previous quarter, the company saw the bulk of its subscriber losses in the UCAN region, which dropped some 1.3 million members during Q2, more than double the 640,000 paid members it shed in Q1. Revenues for the territory did tick up slightly, to $3.54 million from $3.35 million in the previous quarter.
In the EMEA region more than 770,000 subscribers were lost in Q2, also more than double the 300,000 lost in Q1, and revenue also slipped, down to approximately $2.46 million from $2.56 million in the prior quarter.
The LATAM region did see a small increase in subscribers, as some 10,000 new memberships were added in the region in Q2 while revenues cracked $1 million in the quarter, up slightly from just under $1 million in Q1. Finally, in the APAC territory, almost 1.1 million new subscribers were added as revenues dipped slightly in the region to $908,000.
Netflix also revealed that its much-discussed ad-supported pricing tier, which it recently announced it will partner on with software titan Microsoft, is expected to roll out “around the early part of 2023.”
“Our lower-priced advertising-supported offering will complement our existing plans, which will remain ad-free,” the company said in its letter to shareholders. “Over time, our hope is to create a better-than-linear-TV advertisement model that’s more seamless and relevant for consumers, and more effective for our advertising partners.”
The company also emphasized that its rollout will be a long-term, evolving process.
“I want to set expectations at the onset: we’re going to take an iterative approach,” COO and chief product officer Greg Peters said in the post-earnings interview. “This is what we call the ‘crawl-walk-run’ model.”
One issue that was also broached in the interview was that of licensing regarding the ad-supported tier, and the potential need for renegotiation of some content deals to include this new monetization option.
“The vast majority of what people watch on Netflix, we could include in the ad-supported tier today,” co-CEO and chief content officer Ted Sarandos said. “There’s some things that don’t that we’re in conversation with the studios on, but if we launched the [ad-supported] product today, members in the ad tier would have a great experience. And we will clear some additional content, but certainly not all of it.”