Netflix has written a letter to shareholders advising them that the revenue growth of the streamer has slowed considerably. The letter was shared today as part of the company’s latest financial results, which were rather disappointing and revealed the loss of 200,000 subscribers in the first quarter of 2022.
Netflix has blamed the stagnation on various factors, with one being password sharing: the streamer has estimated that over 100 million households are using shared passwords and enjoying The Witcher, Ozark, and other of the streamer’s hit shows at no additional cost, with over 30 million freeloaders residing in the United States and Canada alone.
Other reasons that Netflix gave for its less-than-stellar performance include costs of broadband, increasing competition in the form of other streaming services, and inflation. Netflix’s decision to hike the pricing of its monthly subscription plans probably isn’t helping, either.
Letter to Shareholders (Netflix Investors)
First, it’s increasingly clear that the pace of growth into our underlying addressable market (broadband homes) is partly dependent on factors we don’t directly control, like the uptake of connected TVs (since the majority of our viewing is on TVs), the adoption of on-demand entertainment, and data costs. We believe these factors will keep improving over time, so that all broadband households will be potential Netflix customers.
Second, in addition to our 222m paying households, we estimate that Netflix is being shared with over 100m additional households, including over 30m in the UCAN region. Account sharing as a percentage of our paying membership hasn’t changed much over the years, but, coupled with the first factor, means it’s harder to grow membership in many markets -an issue that was obscured by our COVID growth.
Third, competition for viewing with linear TV as well as YouTube, Amazon, and Hulu has been robust for the last 15 years. However, over the last three years, as traditional entertainment companies realized streaming is the future, many new streaming services have also launched. While our US television viewing share, for example, has been steady to up 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.
Fourth, macro factors, including sluggish economic growth, increasing inflation, geopolitical events such as Russia’s invasion of Ukraine, and some continued disruption from COVID are likely having an impact as well.