Price hikes and competition: Why is Netflix losing subscribers

Company reports loss of 130,000 subscribers in the US and misses international targets

Photograph: iStock

Photograph: iStock

 

What has gone wrong for Netflix? The streaming service reported it lost customers in the US for the first time in eight years, and undershot on its new international customers.

It wasn’t a close thing either.The company lost 130,000 customers in the US in the second quarter; outside the US, Netflix added 2.83 million paid streaming subscribers. That was far short of the 4.8 million analysts had expected to see.

It is the end result of price increases, original content that failed to hit the mark with viewers and growing competition, weakening Netflix’s position at a time when it can ill-afford it.

“Even though we expected slowing user growth in the US, a negative paid net additions number is shocking,” said Clement Thibault, analyst at financial markets platform Investing. com.

“The problem is that with intensifying competition, there is no guarantee Netflix has the pricing power needed to raise prices without massively bleeding users.”

The last time Netflix faced subscriber numbers like this, it was 2011 and the company had split its postal DVD business from its streaming service. The resulting price hike saw more than 800,000 subscribers in the US end their subscription.

Netflix raised prices in the UK in June, hiking the costs for customers by up to 20 per cent. It also increased prices in Switzerland, Greece and other areas of Western Europe. Customers in the Republic of Ireland escaped the price hikes, but subscribers here have suffered several increases in price in recent years. The last was in October 2017.

It’s a bad time to lose subscribers. Disney is readying a full streaming service, Disney+, that will have access to the Star Wars franchise, the Simpsons and Avatar. Apple is also planning its own on-demand video offering, while HBO Max will scoop up some of Netflix’s licensed content, and Comcast has lured The Office to its streaming service from January 2021.

“Netflix has a difficult road ahead, with looming competition and the removal of popular content,” said EMarketer analyst Eric Haggstrom.

Despite the grim news, chief executive Reed Hastings was upbeat. He told analysts the company expected to end 2019 with more new subscribers than it added in 2018. It currently has 151.6 million streaming customers worldwide.

“I think our position is excellent,” he said.

Netflix said the miss is a one-time blip rather than a long-term problem. The second quarter has typically been its weakest time of year: The company missed its forecast during the period in three of the past four years.

The company’s best weapon could be a stronger line-up of new shows, Emarketer’s Haggstrom said. The return of hit shows Stranger Things and Orange is the New Black is expected to drive subscriber figures, with the company predicting it will add 7 million subscribers in the current quarter. Analysts were a little more cautious, estimating 6.6 million.

Netflix is also trying to tap new markets, rolling out a lower-priced plan in India aimed at mobile users in the next three months. The company has ambitious targets there, aiming for 100 million customers. But again, there is tough competition there too, with ambitious local players with cut-rate programming packages to contend with.

“Netflix is in a land grab to capture as many subscribers as possible, whatever the price,” said Michael Pachter, a managing director at Wedbush Securities. “The less they charge, the more cash they are likely to burn.”

Success may come at a price for the streaming service. – Additional reporting: Reuters, Bloomberg