Netflix Revenues Up, Subscribers Down, But Not As Much As Warned

Media Netflix Q2 Revenues Up, Subscribers Down, But Not As Much As Warned David Bloom Senior Contributor Opinions expressed by Forbes Contributors are their own. I’m a media/tech/entertainment writer, podcaster, speaker and analyst New! Follow this author to improve your content experience. Got it! Jul 19, 2022, 04:58pm EDT | New! Click on the conversation bubble to join the conversation Got it! Share to Facebook Share to Twitter Share to Linkedin (Photo by Jakub Porzycki/NurPhoto via Getty Images) NurPhoto via Getty Images Netflix beat its own gloomy guidance for second-quarter subscriber additions, but still lost 1 million subscribers, half what it predicted after a disastrous Q1 report.

The company said it expected a return to growth in subscriber rolls in its third quarter. Share prices, which had been trending upward the past week, jumped sharply both before and after market close today, up about $26 to $215 after the announcement hit. At their peak last November, share prices topped $680.

“It’s tough in some ways, losing a million (subscribers) and calling it success,” Co-CEO Reed Hastings said in an earnings call. “But really, we’re set up really well for the next year. ” The good news for the world’s biggest streaming service is that revenues jumped substantially, a net 9 percent, thanks in part to subscription price increases in the United States and some other markets.

The big jump in revenues came despite a $339 million negative impact from currency exchange issues caused by the strong U. S. dollar.

The less good news is that the company’s total subscribers still drooped for the second quarter in a row, after a decade-long run of increases, especially in the first year of the pandemic. The company predicted in April that it would lose 2 million subscribers this quarter, but actually lost 1 million. In 2021’s Q2, the company added 1.

5 million subscribers after a record 2020 driven by the pandemic. The company predicted Q3 subscriber rolls will grow by 1 million, compared to the 4. 4 million added last year in the quarter.

Q3 revenues are expected to grow 5 percent (up 12 percent year over year). MORE FOR YOU How To Become A Translator CNN’s John Berman: Arizona ‘Sham Audit’ Proves Donald Trump ‘Even Bigger Loser Than The First Time’ ‘Cut Him Off, Cut Him Off Now!’ Newsmax Anchor Ends Interview When Guest Criticizes Donald Trump The more-money/fewer-subscribers dialectic played out even more in the highly competitive U. S.

-Canada market, where customers have six other major subscription services attracting customers with premium programming, and the increasing popularity of ad-supported free services such as Pluto and Tubi. In North America, paid net subscriber adds dropped by 1. 3 million, more than three times the UCAN losses in Q2 2021.

The company said churn in the UCAN market remains “slightly elevated (but) it is now back near pre-price change levels. ” UCAN revenues were up 10 percent year-over-year, not including the foreign-exchange issues. In April’s Q1 earnings announcement, the company reported a 200,000 drop in global subscribers that sent its share prices plummeting by nearly half.

In response, Netflix laid off more than 600 positions (and disposed of around 1,600 positions of the 11,300 it reported at year end). Numerous feature and episodic projects were cancelled, and the company announced plans to launch an ad-supported tier. “We’ve adjusted our cost structure for our current rate of revenue growth,” the investor letter says.

“This resulted in approximately $70 million of severance costs and an $80m non-cash impairment of certain real estate leases primarily related to rightsizing our office footprint. The company reported strong growth in the Asia-Pacific region, enough that it’s $900 million in revenue there is approaching the size of its Latin America region, the company said in its letter to investors . The quarter featured some hugely popular shows, including the third season of The Umbrella Academy and especially the record-setting fourth season of Stranger Things, which the company said attracted 1.

3 billion hours of view time in its first four weeks of release. It’s worth noting the final two episodes of the latter were delayed about a month until July 1, after Q2 ended) . Parrot Analytics, which tracks a variety of platforms to see which programs are generating “demand share” across streaming, said Netflix continued to see a relative decline for its shows in the quarter, to 41.

2 percent, still leading the market, but at the lowest Parrot has tracked. For the first time, Netflix’s six top competitors attracted more attention combined than Netflix programs did in the quarter. “Netflix can often count on healthy overall demand growth even when its share drops, but the total demand for Netflix originals remained virtually flat in Q2 2022, despite record setting US and global demand for new episodes of Stranger Things,” wrote Wade Payson-Denney, a Parrot executive .

“Consumers in the US and worldwide are responding to content available on Netflix’s competition. ” The company named Microsoft last week as its partner in building the technology needed for an ad-supported tier. In concert with that, the company also has been experimenting with ways to crack down on password sharing, which affects some 100 million accounts, it said in April.

Netflix NFLX has been testing new approaches to discourage password sharing and get freeloaders to sign up for their own account, or at least a sub-account that provides the company some incremental revenue from freeloaders. Trials of an “add extra home” password-sharing fee of about $2. 99 are now going on in Argentina and four Central American countries .

Depending on the subscription tier, an account can add one to three extra homes, according to a Netflix blog posting about the trial. Netflix director of product innovation Chengyi Long wrote in the blog that “Today’s widespread account sharing between households undermines our long-term ability to invest in and improve our service. ” The pivot to an ad-supported platform won’t come quickly, but it may indeed play into a strength of Netflix and Youtube: the ability to provide a bottomless well of new things to watch that tend to keep audiences around, wrote the analysts at LightShed Partners in a Monday note .

“We have repeatedly talked about how the more someone uses a streaming service, the less likely they are to churn, which ties to Netflix having the lowest churn amongst SVO VO D services,” analysts Rich Greenfield, Brandon Ross, and Mark Kelley. “However, the importance of time spent becomes the critical driver of revenue when you are trying to sell advertising. Time spent creates inventory (impressions) that can be monetized.

In the connected TV world, Netflix and YouTube dominate time spent and are actually strengthening their lead relative to peers. . .

” “Microsoft MSFT  MSFT helped Facebook build an ad platform from scratch back in 2007,” Ritholtz Wealth Management CEO Josh Brown said. “I don’t think we’re going to see (a Netflix platform) until early next year. What’s interesting about the Netflix ad platform is they won’t have that many subs on Day 1 (but it’s going to be powerful).

It’s working for Peacock, it’s working for several platforms. It’s a different audience, and it’s an audience Netflix has been giving away for free with password sharing. ” “This is the biggest platform in the world,” Brown said.

“Truly, they could have 1 billion people watching content on this platform. It’s been de-risked. Even if that goes on for two years, it’s still a huge audience.

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