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Netflix reports that it lost 200,000 subscribers in the first quarter of 2022

The company says it wants to address password sharing among users

Netflix app concept
Photo (c) stockcam - Getty Images
Netflix’s growth seems to have hit the proverbial wall. When it unveiled its first-quarter earnings on Tuesday, the streaming leader said its hope to add 2.5 million subscribers in the first three months of 2022 came up empty – drastically empty. Instead, it lost 200,000 subscribers in Q1 and expects to lose two million more by the end of June. 

The company’s reported revenue was up 10% to $7.9 billion, likely due to an increase in subscription prices. But, its quarterly profit was slightly down at $1.6 billion; the company earned $1.7 billion during the same timeframe in 2021. The sting from the company’s admission was swift and strong, with its stock value falling as much as 25% in after-hours trading. 

While Netflix admits that its revenue growth has slowed considerably, company officials are reportedly telling investors that streaming is winning over "linear" TV (e.g., a regular TV network like CBS.) Officials also claim that Netflix titles are very popular globally. 

At a crossroads 

Netflix stopped short of blaming COVID-19 for the downturn in revenue, but it did say the pandemic-driven surge in streaming had an effect.

“The big COVID boost to streaming obscured the picture until recently,” the company said in a filing. “However, our relatively high household penetration - when including the large number of households sharing accounts - combined with competition, is creating revenue growth headwinds.”

The company didn’t stop there with its blame game. It also pointed its finger at “sluggish economic growth, increasing inflation, [and] geopolitical events such as Russia’s invasion of Ukraine"

There’s also a tsunami of competition that Netflix didn’t count on facing. In its filing, the company pointed to Prime Video (Amazon), Disney+, Hulu, and YouTube as “robust” competitors that were created by traditional entertainment companies that realized streaming is the future.

The two competitors that Netflix charted with the most growth were Prime Video and Disney. However, it claims that its subscribers seem to be happy and that its U.S. television viewing share has been steady or ascending, according to Nielsen. “We want to grow that share faster. Higher view share is an indicator of higher satisfaction, which supports higher retention and revenue,” the company stated.

Advertising revenue might also be a salve that could boost the company's bottom line. CEO Reed Hastings said Netflix will try to figure out if it can add in "low-end, ad-supported plans over the next year or two" -- a move that MarketingDive said would put Netflix at parity with other streaming platforms like HBO Max and Disney+.

Is there a password-sharing crackdown on the way?

One thing that Netflix is likely to keep chipping away at is password sharing. Earlier this year, it announced that it may start charging subscribers more if they share their passwords. And there seems to be a lot of that going around – an estimated 100 million households are reportedly breaking Netflix’s rules by sharing passwords.

The big question is just how far Netflix will go to stop password sharing. Hastings said in a previous quarterly review that he knows the company has to be careful with whatever approach it takes.

“We test many things, but we would never roll something out that feels like ‘turning the screws,’ as you said,”  Hastings said. “It has got to feel like it makes sense to consumers, that they understand. And [Netflix’s chief product officer has] been doing a lot of great research trying variants that harmonize with the way consumers think about it.”

Hastings described the practice of password sharing as "something you have to learn to live with" and that much of it is "legitimate" between family members.

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