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Business News/ Industry / Media/  Netflix loses one million paid subscribers in Q2, to introduce advertising tier
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Netflix loses one million paid subscribers in Q2, to introduce advertising tier

Netflix will launch a lower-priced plan in early 2023 which will allow advertising that will complement its existing plans. There are also plans to monetise the 100 million plus households that are consuming but not directly paying for the service

Netflix chief executive Reed Hastings. The platform has attributed its slowing revenue growth to connected TV adoption, account sharing, competition, and macro factors such as sluggish economic growth and the impact of the war in Ukraine. (Photo: Mint)Premium
Netflix chief executive Reed Hastings. The platform has attributed its slowing revenue growth to connected TV adoption, account sharing, competition, and macro factors such as sluggish economic growth and the impact of the war in Ukraine. (Photo: Mint)

NEW DELHI: Netflix, the American streaming platform, lost one million paid subscribers globally in the April to June quarter, in a big set back from the 1.5 million subscribers it added in the same period a year ago. The subscriber loss, however, was lower than the 2 million forecast by the company while announcing in January-March earnings.

Average revenue per membership (ARM) in the APAC (Asia and Pacific) region fell 2% year-on-year, it said, because of price drop in India last December. Netflix slashed rates by 18-60% across plans in India to woo more audiences and deepen penetration.

The company also said it will launch a lower-priced plan in early 2023 which will allow advertising that will complement its existing plans. There are also plans to monetise the 100 million plus households that are consuming but not directly paying for the service.

“We added 1.1 million paid memberships in the (APAC) region (versus 1 million last Q2). ARM in APAC was -2% year-over-year, due to the impact from our price decrease in India last December as well as plan mix, which was partially offset by higher ARM in Korea and Australia. Excluding India, APAC ARM grew 4% year-over-year on a constant currency basis," the company said in a letter to shareholders. 

Over the last two quarters, the Reed Hastings-owned platform has attributed its slowing revenue growth to connected TV adoption, account sharing, competition, and macro factors such as sluggish economic growth and the impact of the war in Ukraine.

Overall, the service that forecasts 1 million paid net additions worldwide for Q3 versus 4.4 million in the year ago quarter, said it expects high impact of the unprecedented appreciation in the US dollar because nearly 60% of its revenue comes from outside the US and swings in foreign exchange have a large flow through to operating profit as most of its expenses are in US dollar and don’t benefit from a stronger greenback.

Spence Neumann, chief financial officer, said the company expects to spend about $17 billion on content this year. The fourth season of its science fiction horror drama Stranger Things that generated 1.3 billion viewing hours within its first four weeks this quarter is the platform’s most viewed English TV show ever, with co-chief executive officer Reed Hastings singling it out during an earnings call.

The initial response the company is getting from a brand and advertiser perspective (for its ad-supported tier) is quite strong, said Greg Peters, chief operating officer and chief product officer at Netflix, adding that the company knows there’s price sensitivity around consumers. 

“Some of those consumers are folks that have never actually ever signed up for Netflix. Some of them..were members for us for a period of time and they decided to cancel for a variety of reasons. Some..are currently watching Netflix, but they’re using another paying member’s account credentials. All of those represent opportunities for us because we’re bringing a wider range of prices through the ad-supported offering, a lower consumer facing price to be able to attract a broader set of members," Peters said in an earnings call.

The lower priced advertising-supported offering will complement Netflix’s existing plans, which will remain ad-free, the letter to shareholders said, adding that the platform will start by rolling it out in “a handful of markets where advertising spend is significant."

Having launched in Latin America as of now, the company is trying out two approaches to monetise viewers that aren’t paying for the service directly and minimise losses from account sharing. “Essentially, both of them (the plans) are similar in that they ask consumers not to stop sharing but just to pay a little bit more for different forms of sharing. The first model that we deployed was to pay a little more to add a member and share (the account) with those additional members. The second model we’re trying is pay a little more to add an additional home and share the account with the additional homes," Peters said during the call.

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ABOUT THE AUTHOR
Lata Jha
"Lata writes about the media and entertainment industry for Mint, focusing on everything from traditional film and TV to newer areas like video and audio streaming services. She loves movies and spends a lot of her free time watching them, which makes her job both fun and a bit of a challenge. Lata tries to find and write about things in the entertainment world that most people don't notice, even though a lot of people in her country are really into movies and entertainment news often just talks about the glamorous side of things. "
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Published: 20 Jul 2022, 03:59 PM IST
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