Growth Brake on Netflix... New Sign-ups Drop to One-Tenth

1.54 Million Subscribers in Q2
Sharp Drop Compared to 10.1 Million Last Year
"Subscribers Lost to Disney Plus"

[Asia Economy Reporter Yujin Cho] The number of new subscribers to Netflix, the world's No. 1 online video service (OTT) provider, in the second quarter of this year dropped to one-tenth of the level from a year ago. Last year, subscriber numbers surged explosively due to the impact of COVID-19, but as economic reopening increased outdoor activities this year, demand has significantly decreased again. New entrants have continued to enter the market to capture the suddenly expanded market, leading to excessive competition, and the outlook for the second half of the year is not bright. Netflix plans to take another leap forward through game content.

Reed Hastings, CEO of Netflix (Photo by Reuters)

◇ 430,000 Decrease in the U.S. and Canada = Netflix announced in a letter sent to shareholders on the 20th (local time) that the number of new subscribers in the second quarter of this year was 1.54 million. This figure exceeds Wall Street's expected figure of 1 million, compiled by financial information firm Refinitiv, but it is only 15% of the 10.1 million recorded in the same period last year. Netflix's total number of subscribers reached 290 million, but it lost 430,000 subscribers in its largest market, the U.S. and Canada.

Performance was also poor. Earnings per share in the second quarter were $2.97, falling short of Wall Street's estimate of $3.14. Revenue for the same period was $7.34 billion, slightly exceeding the expected $7.32 billion. Due to the poor performance, Netflix's stock price fell 4% in after-hours trading before slightly rebounding. Netflix evaluated that "the delay in content production caused by the COVID-19 pandemic last year postponed the release of new content scheduled for the first half of this year, which affected the performance."

The company is optimistic that the subscriber growth trend will accelerate again in the third quarter, breaking this trend. It expects subscriber growth to recover as delayed follow-up seasons and new content will be newly released in the third and fourth quarters. Netflix stated that it spent more than $8 billion in cash on content investment in the first half of this year. According to FactSet, 3.5 million new subscribers are expected to be added in the third quarter, but this is lower than investors' forecast of 5.5 million.

Photo by NYT

◇ Losing Subscribers to Disney Plus... Breakthrough Through Games = Foreign media analyzed that the end of the COVID-19 special demand and intensified competition among OTT providers have shaken the market landscape, affecting the sharp decline in subscriber numbers.

The New York Times (NYT) cited a survey by content analysis firm Parrot Analytics, reporting that OTT viewers are rapidly moving from Netflix to Disney Plus. It is analyzed that latecomers armed with mergers and acquisitions (M&A) and independent studio operations are rapidly expanding their presence based on original content, causing Netflix, which has maintained a dominant market share for over 10 years, to lose its dominance.

Parrot Analytics said in a press release before Netflix's earnings announcement that "the lack of original blockbusters and intensified competition in the OTT market are negatively affecting Netflix's subscriber growth and retention." According to global market research firm Ampere Analysis, Netflix's market share shrank significantly from 29% in 2019 to 20% last year.

Netflix is expanding into new businesses such as mobile games and consumer goods as a breakthrough to overcome growth stagnation. To this end, Netflix hired Mike Verdu, formerly of Electronic Arts (EA) and Facebook, as vice president of game development.

Reed Hastings, Netflix CEO, said, "We will not rely on revenue from games or consumer goods businesses," adding, "We plan to continue focusing on improving OTT services such as content investment."

This content was produced with the assistance of AI translation services.