Jul 20, 2022 - Economy

Netflix feels the heat

Illustration of a fan blowing cool air on the Netflix logo.

Illustration: Gabriella Turrisi/Axios

Netflix on Tuesday predicted that its streak of losing subscribers will end soon — suggesting the broader streaming slowdown may not be as bad as investors were expecting, although headwinds still persist.

Why it matters: The proliferation of streaming services is threatening Netflix's dominance, but its performance is still seen as a bellwether for the larger entertainment industry

Driving the news: Netflix lost 1.3 million subscribers in the U.S. and Canada, a troubling sign of saturation in the world's most lucrative streaming market. But company executives said on an earnings call Tuesday they believe the slide will stop in the next quarter.

  • Netflix has lost more than $200 billion in market value this year.
  • “We are talking about losing one million [subscribers] instead of losing two million, so our excitement is tempered by less bad results," co-founder and co-CEO Reed Hastings said on an investor call.
Percentage change in Netflix global streaming subscribers
Data: Netflix earnings reports; Chart: Erin Davis/Axios Visuals

What we're watching; While executives sounded optimistic about Netflix's overall strategy, it was clear that the days of extraordinary user growth are over now that the pandemic has receded.

  • The company's chief financial officer said he doesn't expect to increase the amount the company spends on content — about $17 billion per year — for the next few years, despite previous annual budget increases.

What's next: In an effort to boost subscriptions, the company said it would finally introduce an ad-supported tier in early 2023, after dismissing the idea for years.

  • Executives declined to say how many current subscribers it believes will switch plans.
  • Netflix also discussed tests to introduce paid sharing plans to force the roughly 100 million+ households that it believes are watching Netflix through shared passwords finally pay up.

The big picture: Netflix has been able to maintain its lead as the most-watched streamer in the U.S., despite having to overhaul its content strategy to become less reliant on licensing titles from other networks.

  • Overall, a majority (60%) of the content assets on Netflix's balance sheet are self-produced.
  • The company cited new Nielsen figures that suggest it drew more TV viewing time than any other outlet during the 2021-22 TV season.
  • Thanks to the extraordinary popularity of the fourth season of "Stranger Things," the company said it captured the highest percent of total U.S. screen time (7.7%), measured by Nielsen, in June.

The bottom line: Executives believe that as long as streaming continues to grow, Netflix's business will remain resilient.

  • “It’s definitely the end of linear TV over the next 5-10 years,” Hastings said.

Go deeper: Netflix stock spikes following better-than-expected subscriber losses

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