Netflix Loses Subscribers But Not As Many As Predicted

Bad news was actually good news for NetflixNFLX
on Tuesday. In the company’s much-anticipated second quarter earnings call, coming three months after the streamer lost subscribers for the first time in a decade, it announced that it had lost an additional 970,000 subscribers.

That’s not good, certainly, but it could have been worse—in fact, Netflix thought it would be worse. It had projected a loss of 2 million subscribers in Q2, which is why its stock price rose more than 6% in after-hours trading on the news.

What’s more, Netflix predicted it would return to black among subscribers in the third quarter, projecting it will add 1 million. Last year during the same period, it added 4.4 million, so while the recovery is significant, the company is still nowhere near returning to its peak boom period.

Netflix currently has 220.67 million subscribers. It credited content, including the record-breaking recent return of Stranger Things, for continued growth.

The numbers came a day after the service said it would begin testing a new system to crack down on password sharing, which it had blamed for some of its woes. It’s long been an open secret that users share passwords outside their households. During the early days of the pandemic, when subscribers were expanding seemingly by the day, it didn’t seem to bother Netflix as much.

But with the recent rash of other streaming services debuting within the past three years, including HBO Max, AppleTV+, Disney+ and Peacock, and Netflix’s subscriber hiccups, the service became laser-focused on stopping the password share.

Earlier this week, it said it had expanded an initial test that allows one household to add users in a “second home” for a lower price. It’s been testing in Latin America, and the service hopes to roll out this paid sharing option worldwide in 2023.

The battle over passwords sets up a strange dichotomy, pitting the service against its own users—if Netflix discovers that people are continuing to share passwords without paying for the extra home, the primary account will be blocked.

Yet what choice does the service have? It has estimated that as many as 100 million people could be watching for free. With subscription growth now at a premium, and many people maxing out on how many services they want to subscribe to, it became clear that something was going to be done.

While much was made of password sharing when last quarter’s numbers were announced, it seemed less of a focus Tuesday, perhaps because the results were rosier than anticipated or perhaps because potential solutions have been discussed ad nauseam (Microsoft pun intended) since that last call.

“Netflix is down but nowhere near out” seemed to be the theme of the earnings call. And it could soon be on its way back up again with the bow of that new ad-supported streaming service, which will launch in 2023. In its letter to investors, Netflix outlined its planned rollout, using a system it has embraced for the second-home service and other innovations: easing out the widespread release to give time to make adjustments.

“We’ll likely start in a handful of markets where advertising spend is significant,” the company wrote in a letter to investors. “Like most of our new initiatives, our intention is to roll it out, listen and learn, and iterate quickly to improve the offering. So, our advertising business in a few years will likely look quite different than what it looks like on day one.”

Netflix also confirmed that existing plans would remain ad-free.

While the jump in stock was heartening, Netflix has seen its value plunge this year amid concerns about subscriber bleed. It is down about two-thirds year to date.

In the wake of the subscriber losses, the streamer has made cost-cutting moves. It dismissed a slew of people from content teams, moves well documented across social media the past couple of months. In two rounds of cuts this year, more than 400 people have lost their jobs.