Netflix Loses 970K Subscribers, but Forecasts 1M Gain in Next Quarter

Netflix lost 970,000 subscribers during the second quarter, performing better than its expectations of a 2 million loss, the company disclosed Tuesday.

During the first quarter, when Netflix lost 200,000 subscribers and spurred Wall Street and Hollywood to reevaluate the economics of the streaming business, the company warned that it expected to lose an additional 2 million subscribers during Q2. Though the quarter still ended with a net loss in subscribers, the streaming giant is projecting it will add 1 million subscribers in Q3.

Netflix now has a total of 220.67 million subscribers, a decrease from the 221.64 million reported at the end of Q1. Revenue hit $7.97 billion for the second quarter, representing a roughly 8 percent year-over-year growth in part due to a “stronger U.S. dollar,” according to Netflix’s letter to shareholders, while net income landed at $1.44 billion.

By region, Netflix saw the most losses in the U.S. and Canada, despite major English-language series like Stranger Things‘ fourth season premiering during the quarter. UCAN saw a 1.3 million loss in subscribers, dropping to a total of 73.3 million paid subscribers in the region. The Europe, Middle East and Africa region also saw a decline in subscriber growth during Q2, losing 770,000 subscribers, while Latin America saw a modest addition of 1,000 paying subscribers. The Asia-Pacific region emerged as the strongest contributor to Netflix’s subscriber growth, bringing in 1.08 million subscribers during the quarter.

Source: Netflix filings

Netflix’s subscriber losses have been a major wake-up call for the company, which has long been known for its big budgets and lavish spending. In the aftermath of its Q1 earnings report, Netflix went into overhaul mode: The streamer implemented several rounds of layoffs, with the most recent resulting in the loss of 300 staffers, which amounted to $70 million in severance costs; reevaluated its film strategy to focus on fewer but better projects, moving away from the low-budget fare; and fast-tracked its adoption of an advertising-supported subscription tier by partnering with Microsoft, which will handle sales and tech for the streaming company.

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In its letter to shareholders, Netflix said it planned to release its ad-supported tier “around the early part of 2023.” The offering will likely first roll out in markets where “advertising spend is significant.” The letter continued, “While it will take some time to grow our member base for the ad tier and the associated ad revenues, over the long run, we think advertising can enable substantial incremental membership (through lower prices) and profit growth (through ad revenues).”

Netflix has also taken steps to monetize password sharing by allowing primary account holders to add users outside of their households for a fee. In August, the company will roll out an additional fee structure in Argentina, the Dominican Republic, El Salvador, Guatemala and Honduras that will add an additional “home” outside of the primary account for $2.99 a month. Based on these two approaches, Netflix said it is expecting to “find an easy-to-use paid sharing offering” that can be rolled out widely in 2023.