Video-on-demand killed the radio star: why Netflix is losing subscribers

Netflix made the transition from DVD rentals to online streaming in 2007, forever changing how the world consumes its content. As a forerunner in the space, the company went from strength to strength – reaching milestones and breaking records.

Its share price did the same.

Netflix's most recent quarterly data speaks to a new challenge. In Q1 of this year, the company posted a loss in subscribers for the first time in a decade. Netflix states they now have more than 220 million subscribers -- a net reduction of 200,000 users – a surprise result that sent shares plummeting. Netflix subsequently revised its forecast for Q2 2022, anticipating a further 2.5 million subscribers to leave.

The company attributed the drop to four primary reasons in its Shareholder Letter: the adoption and cost of on-demand viewing, password-sharing, competition, and macroeconomic factors they deem ‘out of their control’.

On top of its 222m-strong user base, Netflix predicts 100m more households accessing its services through shared passwords. To tackle this, new tiers and subsequent fees will be introduced as early as Q4. The company has met criticism for raising prices when many of its most popular shows haven’t been renewed for new seasons. Could another fee hike drive even more subscribers away and into the arms of the competition?

While Netflix still holds majority market share, according to Nielsen data, the rise in traditional entertainment outlets moving into video-on-demand has also impacted the user numbers. Disney+ has achieved in a very short time what took Netflix the better part of a decade to do, but that’s with a massive catalogue of film and TV (including behemoth franchises) and large budgets. Like Amazon and Apple, Disney’s primary business doesn’t come from or rely as heavily on its streaming arm, giving them all an added advantage over Netflix.

Netflix is expected to post its Q2 results on July 19th – while we don’t yet know whether their projected numbers will be met, we do know that the company needs a turnaround. Shares are down almost 70% year-to-date, with its market cap sat around the $82.5 billion mark – a stark contrast from it’s $700 all-time-high.

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