Why Is Netflix Losing Subscribers?

After reporting a loss in subscribers, in Q1 2022, Netflix managed to revamp its subscribers count and bring it back to a higher level by Q3 2022.

Indeed, by September 2022, Netflix recorded 223 million subscribers, vs. the almost 222 million subscribers at the end of 2021.

No doubt, Netflix’s growth has slowed down.

Why?

In Q1 of 2022, Netflix’s subscribers slowed down for the first time in a decade.

Various factor seems to have affected this slow-down.

In Q1, 2022, for the first time, in 10 years, Netflix lost subscribers!

What happened there? Let’s try to make some clarity to this mess.

As Netflix announced its first-quarter results, the stock fell apart:

In a single session, the company lost 35%. And we’re not talking about a low-cap meme stock. That burned billions of dollars in a single stroke.

Table of Contents

What did cause Netflix to lose subscribers for the first time in its history?

1. Uptake of connected TVs

The streaming market, which was a nascent industry just ten years ago, has become an established market, which is also eating into the traditional TV industry.

This opens up new scaling up opportunities for Netflix, but also a lot more competition.

In this context, as we’ll see Netflix is revamping its whole business model. In fact, while many analyze Netflix from the perspective of content, in reality, there is way more to it.

It’s a business model matter.

2. Password Sharing

By Q1 2022, over 100m additional households watched Netflix but didn’t pay for it.

Over the years, this hasn’t been a problem, as Netflix indeed incentivized and made fun of password sharing.

Yet, in a scenario where the streaming market becomes fiercely competitive, also those shared accounts become critical.

In fact, Netflix is now stopping the password-sharing practice, trying to monetize these shared accounts, allowing members to share with multiple family/friends by paying a higher tier.

3. An ad-supported Netflix

For all its history, Netflix managed to grow from zero to over 220 million subscribers worldwide!

This was an incredible fit. And Netflix was the company that over the years created the premise for the so-called subscription economy.

However, we’re not at a different stage.

Netflix is operating in a mature industry, ready to make its last step into traditional TV.

Indeed, where initially, the streaming industry moved outside the boundaries of traditional TV.

Now, it’s time for the streaming market to take its last mile and take over what’s left of traditional/linear TV programming.

Netflix itself is a fundamentally different company. One thing is when you operate at a small scale; another thing is when you’re a company working with over 220 million accounts globally, over eleven thousand employees and a 30 billion dollars turnover!

In short, Netflix is preparing to add an additional engine to its business model, which is the ad-supported engine.

This will help Netflix try to achieve the next level of scale in the coming decade, that to reach a billion active users/members worldwide.

The ad-supported version will help Netflix gain a foot into the TV advertising industry, thus building the technology and network of advertisers and learning that game.

And enable more users to join in.

4. New streaming services have also been launched.

For years, Netflix has been the undisputed king of streaming. However, competition has quickly picked up in the last 3-5 years.

And players like Disney have successfully built a streaming empire against Netflix.

5. Macro factors

Consumers found Netflix affordable till the 2020s; as we go into a global slowdown in 2022 in the future, having a Netflix subscription active might not be an option for many people struggling from an economic standpoint.

This makes the cost of switching to other streaming services or canceling the subscription altogether way more plausible.

Thus, Netflix has to learn to operate in this new scenario for at least 3-5 years.

6. Attention shifting on new platforms

Another critical element is how attention, the core asset that Netflix trades, has been shifting to other platforms.

This is especially true for younger generations hanging on platforms like TikTok. This makes the competition much harder to understand and forces Netflix’s executive team to look beyond the streaming industry.

Netflix Business Model Transformation

In short, Netflix is going through a new stage of development for its business model, where it’s transitioning to keep its position as a leading player in the maturing streaming industry.

This is calling for a revamped business model.

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