Netflix Is Having Financial Problems

Netflix reported a loss of 200,000 subscribers during the first quarter – its first decline in paid users in more than a decade – and warned of deepening trouble ahead, CNBC reported. According to CNBC, Netflix’s shares cratered more than 25% in extended hours after the report on more than full day’s worth of trading volume. Fellow streaming Roku, Spotify, and Disney also tumbled in the after-hours market after Netflix’s brutal update.

Netflix recently provided information to its shareholders. Here are some key points:

Netflix stated: “In the near term, though, we’re not growing revenue as fast as we’d like. COVID clouded the picture by significantly increasing our growth in 2020, leading us to believe that most of our slowing growth in 2021 was due to the COVID pull forward. Now, we believe there are four main inter-related factors at work”.

Those factors are:

  • 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 (since the majority of our viewing is on TVs), the adoption of on-demand entertainment, and data costs.
  • In addition to our 222m paying households, we estimate that Netflix is being shared with over 100m additional households, including over 30m in the UCAN region. 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.
  • Other factors Netflix pointed to include: competition for viewing with linear TV as well as YouTube, Amazon, and Hulu, as well as traditional entertainment competitors. Netflix also believes that “macro factors” such as sluggish economic growth, increasing inflation, geopolitical events such as Russia’s invasion of Ukraine, and some continued disruption from COVID are likely having an impact as well.

How does Netflix plan to fix their problem? The Hollywood Reporter has the answer to that question. Netflix is planning to roll out less expensive plans, supported by advertising. According to The Hollywood Reporter, Netflix co-CEO Reed Hastings said that they will be examining what those plans will look like “over the next year or two”. Netflix COO Greg Peters said that advertising “is an exciting opportunity for us.” Hastings said that when Netflix launches its ad-backed tier, it would do so as a publisher, without data tracking and ad-matching that some competitors are embracing.

Personally, I don’t think the offer of a less expensive Netflix, filled with ads, is going to entice people to get a Netflix account. That’s especially true if the ads break into shows or movies in random places, destroying the mood for viewers.