'OTT Giant' Netflix Stumbles with 100 Million Free Users

First Subscriber Decline in 11 Years
Second Quarter Expected to See 2 Million More Losses

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyun-jung] Netflix, the world's largest online video service (OTT), has experienced its first subscriber decline in 11 years. Netflix cited the increase in non-paying users due to paid members sharing accounts and intensified industry competition as causes, forecasting that the subscriber decline in the second quarter will worsen by a factor of 10.

On the 19th (local time), Netflix announced that as of the first quarter of this year, the global paid subscriber count was 221.6 million, a decrease of 200,000 from the previous quarter. This result not only fell far short of the market forecast of a 2.5 million increase but also marked the first 'negative' growth since 2011. Bloomberg News commented, "Netflix, which grew rapidly shaking Hollywood, has hit a wall."

During the same period, Netflix's revenue reached $7.87 billion (approximately 9.7643 trillion KRW). This represents a 9.8% increase compared to the previous year but fell short of both its own estimate ($8.05 billion) and Wall Street's expectation ($8.23 billion).

100 Million Households Watch for Free via Account Sharing
Service Suspension in Russia and Inflation Also Pose Challenges

◆ '100 Million Households' Share Accounts... OTT Stocks Fall Together = The sluggish performance of Netflix, a leading video platform, is attributed to paid members sharing accounts and intensified industry competition. According to Netflix, in addition to the 221.6 million paid subscribers, there are about 100 million households using the service without paying. These households are using passwords shared from existing subscribers by taking advantage of the ability to register multiple devices under one paid subscription.

Netflix executives stated in a shareholder letter, "Netflix's relatively high household penetration rate, combined with market competition, is creating headwinds," and they are considering ways to convert these 100 million non-paying users into paid subscribers.

The suspension of services in the Russian market, following Russia's invasion of Ukraine, is also one of the reasons for the net subscriber decline. The number of subscribers lost due to Netflix's decision to halt services in Russia is estimated to be around 700,000.

Additionally, the company pointed to factors such as the shift in demand to smart TVs, spending restraint due to inflation, and ongoing disruptions caused by the COVID-19 pandemic as reasons for the slowdown in growth. Reflecting this deteriorated operating environment, the company forecasts an additional loss of 2 million subscribers in the second quarter of this year.

Netflix's stock price, which has already fallen 42% since the beginning of the year, plunged an additional 26% in after-hours trading following the earnings announcement. The poor performance news from the industry leader also caused the stocks of similar service providers Roku (down 8.3%), Walt Disney (down 5.3%), and FuboTV (down 5.4%) to decline in after-hours trading.

However, Netflix cited the success of Korean dramas such as 'All of Us Are Dead' as a positive factor, noting that the number of subscribers in the Asia region increased by more than 1 million. This is a strong performance compared to the loss of over 600,000 subscribers in the U.S. and 300,000 in Europe, the Middle East, and Africa.

Stock Price Plummets 26% in After-Hours Trading
May Introduce Low-Cost Plan with Ads

◆ Can a Low-Cost Plan with Ads Provide a Breakthrough? = As rising service fees are also cited as a cause of member churn, Netflix appears to be seeking a breakthrough through a low-cost plan.

To offset intensified competition and increased programming costs, Netflix raised its monthly subscription fees for the first time in two years earlier this year. At that time, the standard plan in the U.S. was adjusted from $13.99 to $15.49 per month, and the premium plan from $17.99 to $19.99.

On this day, Netflix CEO Reed Hastings said, "I support consumer choice," adding, "It makes sense to allow consumers to get what they want at a lower price in exchange for watching ads." Netflix is currently developing an ad-supported service and plans to launch it within the next one to two years.

Competitors have already begun offering low-cost services with ad insertion options to reduce subscriber costs, considering the spending burden on subscribers. Walt Disney launched 'Disney Plus' at the end of last year, and Amazon introduced 'Amazon Freevee.' The OTT 'FIFA Plus,' launched by the International Federation of Association Football (FIFA), is also rapidly increasing subscribers thanks to its advantage as an ad-supported free service.

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