Netflix has been losing subscribers consistently over the past year. After reaching a peak of 221.84 million global paid memberships in Q4 2021, Netflix reported a loss of 200,000 subscribers in Q1 2022. This was followed by a loss of 970,000 subscribers in Q2 2022 and an additional 1.2 million lost subscribers in Q3 2022. Several factors have contributed to this decline.
Competition
The streaming industry has become increasingly competitive in recent years. Whereas Netflix was once the dominant force in streaming video, it now faces significant competition from services like Disney+, HBO Max, Apple TV+, and Amazon Prime Video. Many of these services are pouring billions into developing high-quality original content to attract viewers. This increased competition is making it harder for Netflix to retain subscribers.
Disney+, for example, has grown rapidly to over 160 million global subscribers since launching in 2019. Disney is leveraging its popular entertainment brands like Star Wars and Marvel to draw viewers. HBO Max offers a large catalog of high-quality HBO programming and has surpassed 100 million subscribers globally. And Apple is using its deep pockets to fund prestige shows and movies for Apple TV+. This competition is giving consumers more options and making subscriber retention difficult for Netflix.
Price Increases
In January 2022, Netflix raised monthly subscription prices in the United States and Canada. The popular Standard plan rose from $13.99 to $15.49 per month, while the Premium plan jumped from $17.99 to $19.99 per month. This was the sixth time Netflix has raised prices in those markets since launching its streaming service in 2007.
These latest price hikes likely contributed to the subscriber losses in early 2022. When costs go up, some price-sensitive subscribers decide to cancel their memberships. Netflix is also facing inflationary pressures, with rising costs for content production and licensing. Passing those costs onto consumers risks further subscriber losses.
Account Sharing Crackdown
Netflix has estimated that over 100 million households are accessing the service through shared password credentials. In Q1 2022, Netflix began testing new features to limit password sharing and push more viewers to open paid accounts. This included prompts asking subscribers to verify their accounts if watching outside of their home and the ability to add sub-accounts for an extra fee.
Cracking down on password sharing reduces the number of total viewers, since those using shared logins are not being counted in official subscriber numbers. While this may boost revenue over the long run, the short term impact is a decline in reported subscribers as password sharers are pushed off the platform.
Content Gaps
While Netflix spends over $17 billion a year on content, it has had some challenges in consistently delivering hit shows and movies. Netflix benefited in the early days of the pandemic from releases like Tiger King, Ozark, and The Queen’s Gambit. But more recently, the platform has faced gaps between major releases.
Competitors like Disney+ and HBO Max have extensive back catalogs of shows and movies they can reliably schedule to keep subscribers engaged. Netflix is still building up its library of owned content. When there’s a lull between big releases, some subscribers may decide to cancel and come back later.
Maturing U.S. Market
Netflix has nearly saturated the U.S. market, with over 75% of households subscribing to the service. With fewer potential new subscribers to acquire, Netflix is dependent on retaining its current members. Price hikes and competition make it harder to retain subscribers in mature markets like the U.S. and Canada.
Most of Netflix’s future subscriber growth is expected to come from international markets like Asia, Latin America, and Africa. But losing subscribers in North America signals challenges ahead as other markets also mature.
Economic Uncertainty
High inflation, rising interest rates, and talk of a potential recession have created an uncertain economic environment heading into 2023. Households looking to cut back on expenses may view streaming services as discretionary purchases that can be canceled. Netflix is sensitive to consumer spending power since it does not show ads and relies entirely on subscriber fees.
If macroeconomic challenges persist, Netflix could continue to struggle with subscriber losses. Lower-priced competitors like Disney+ may appear more appealing to cost-conscious households.
Strategy Shifts
In response to its subscriber losses, Netflix has indicated it is open to several strategic shifts. This includes:
- Launching a lower-priced ad-supported plan in early 2023 to appeal to price-sensitive viewers.
- Cracking down further on password sharing beyond the initial tests.
- Finding ways to monetize account sharing rather than banning it outright.
- Redoubling efforts to boost content output, especially for international markets.
- Considering live streaming for some unscripted shows and stand-up specials.
- Exploring pricing options like allowing account sharing or channel packages.
These potential changes show Netflix is still adapting its model in the face of escalating competition. But it remains uncertain if adjustments will be enough to reignite subscriber growth, especially as economic challenges loom.
Forecast
Netflix is projected to report another loss of 2 million subscribers when it announces Q4 2022 earnings in January 2023. This will bring the total subscriber loss for 2022 to around 4.5 million. For 2023, estimates call for membership growth to resume but at a slower pace than past years. Netflix will likely end 2023 with around 230-235 million global paid memberships compared to 222 million currently.
The key factors to watch in 2023 will be the launch of the ad-supported plan, uptake for this cheaper option, crackdowns on password sharing, and whether Netflix can ramp up hits across multiple genres. Netflix still holds a strong market position but will need to carefully execute strategic shifts to return to consistent subscriber growth in an increasingly crowded streaming landscape.
Conclusion
Netflix faces challenges on multiple fronts in retaining and attracting subscribers. Growing competition from deep-pocketed streaming rivals along with economic uncertainty has highlighted vulnerabilities in Netflix’s position. While still the streaming market leader, Netflix appears to have entered a new mature phase with slower growth. Adjusting its strategy to account for competition and macroeconomic factors will be critical if Netflix aims to reignite substantial subscriber expansion.