Bearing nearly as much suspense as the end to Strangers Things’ fourth season, Netflix dropped its second quarter earnings Tuesday. And guess what? Things aren’t as bad as Netflix itself predicted.
They’re still bad, though. The company reported the loss of 970,000 subscribers, but it had forecast it could have lost up to 2 million. The company originally expected it would go from 221.64 million subscribers to 219.64 million but in the end only fell to 220.67 million, according to the earnings report.
In the letter addressed to shareholders, the company in part summarized the last quarter saying, “Reaccelerating our revenue growth is a big challenge. But we’ve been through hard times before. We’ve built this company to be flexible and adaptable, and this will be a great test for us and our high performance culture.” The letter went on to say that they’re optimistic about the future. Part of that optimism is the expected growth of 1 million subscribers this next quarter.
In an earnings interview published late Tuesday, co-CEO Reed Hastings said while losing less subs than expected is a good thing, “our excitement is tempered by the less bad results... but we’re very bullish on streaming.”
From Good — to Bad — to Less Bad But Still Not Great
Netflix suffered a heavy blow back in April, showing that in the first few months the company lost subscribers for the first time in its history at a time when previous estimates expected it to gain two million.
The New York Times called this latest earnings call Netflix’s “D-day” and would forecast the struggling company’s path forward. Analysts had predicted that subscriber loss would be in line with what Netflix previously predicted. Even though Stranger Things 4 broke company records for number of viewership hours—Netflix reported a total 1.3 billion hours viewed—but analysts have hinted that subscribers would leave after they catch up on all the happenings in Hawkins, according to the Times.
A recent Vox report based on data from research service Antenna showed Netflix subscribers are the most likely to quit after the first month with their account compared to all other streaming services. Though at the same time, the platform’s subscriber base is less likely to quit overall, but that number has been getting worse since the start of the year.
The company has aimed its issues at several points, including rising competition among streaming platforms and the war in Ukraine that cost the company hundreds of thousands of accounts from the now-banned Russia. But another sticking point for the streaming giant was the supposed 100 million accounts that share passwords with friends and family.
Even though the company had seen massive growth over the years, analysts and Netflix critics told Gizmodo the issue was more to do with the company’s over-reliance on debt to fund its original content.
How Netflix Plans to Get Back on Track
Since April, its stock price has remained far below 2021 pandemic highs, though anticipated news of Netflix’s Q2 earnings did give the company a small boost through Tuesday. It has spent the past few months cutting employees, including 300 in April and another 150 in May. This latest earnings report showed that Netflix paid out $70 million in total severance over this past quarter.
Other than axing staff, Netflix’s plans to get back on track have so far been two-pronged. One end of the fork has been creating a new ad-based subscriber tier, even though that’s something Netflix co-CEO Reed Hastings has railed against in the past. The company recently announced a partnership with Microsoft, of all companies, to handle those ads. They plan to release this new ad tier sometime early in 2023.
Netflix chief product officer Greg Peters said during the earnings interview that they want this new ad experience to be “fundamentally different” than what the competition offers, though he was extremely light on details. Otherwise Peters described ads as an extra “dimension” to Netflix’s total subscription packages, leaving it open whether there could be more than one subscription tier with ad integration. Company representatives have previously told Gizmodo that it’s still too early to say what the entire package of subscription tiers will look like in a year’s time.
Co-CEO Ted Sarandos also left it an open question what content will be contained on the ad-based tier, since they still need to negotiate with the companies distributing non-Netflix original content.
The other end of Netflix’s plans is restricting password sharing, which has proved to be a much harder and much more controversial endeavor. Just yesterday, the company announced it was making several Latin American countries the first guinea pigs for restricting sharing. Users in those countries are now being asked to shell out an extra $2.99 a month to add an extra TV outside the account holder’s home.
In the interview, Peters said “I’m increasingly confident that, based on what we’re seeing, we’ll have something that we can deploy next year as we were planning.”
The company did not respond to Gizmodo’s previous questions whether this system would be making it over to the U.S. or Europe any time soon.