Mumbai: After sticking to only subscription-based plans for a long time, Netflix is currently considering rolling out an ad-supported subscription package for its consumers. The company expects to streamline and nail down the ad-supported services in the next two years.
“Those that have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription,” said Netflix's co-CEO Reed Hastings on Tuesday. He announced the ad-supported subscription plan at a time when the company's subscriber growth slowed down tremendously. The company revealed a significant downfall in its paying subscriber numbers with a loss of 0.2 million paying subscribers during the first quarter of 2022.
“But, I’m a bigger fan of consumer choice. And allowing consumers who want a lower price and are advertising tolerant, to get what they want, makes a lot of sense," Hastings added.
Excluding Russia's numbers, where the company has shut down its service after Russia invaded Ukraine, the company gained 0.5 million subscribers during the quarter, which is lower than its forecast of 2.5 million. Netflix expects to lose another two million subscribers during the next quarter due to macro factors, higher penetration and competition from other streamers.
Netflix reported $7.8 billion in revenues during the quarter growing by 9.8 per cent year-on-year. The company’s operating income stood at $1.97 billion and net income stood at $1.59 billion.
Its global streaming paid members declined from 221.84 million to 221.64 million during the quarter. Additionally, Netflix reported revenue of $917 billion in the APAC region with paid memberships at 33.72 million up from 32.63 million in the last quarter. It added 1.09 million paying subscribers with an average revenue per member of $9.21. In contrast, Netflix’s average revenue per member (ARM) in the US stood at $14.91.
Netflix lost 0.3 million subscribers in Europe Middle East Africa markets (where it added 0.4 million if you exclude Russia's impact). Similarly, it lost 0.4 million subscribers in the Latin American region. The company saw a decline of 0.6 million in the UCAN region (US and Canada). Only the Asia Pacific and China (APAC) markets saw an increase in net subscribers with ‘nice’ growth in markets such as Japan, India, Philippines, Thailand and Taiwan. Netflix estimated that over the long-term most of its subscriber growth will come from outside the US.
Interestingly, Netflix estimates that in addition to 222 million paying households, the service is being shared with over 100 million additional households including over 30 million 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,” the company said in a statement.
Netflix is testing different approaches to monetize sharing, and in March last year introduced two new paid sharing features, where current members have the choice to pay for additional households, in three markets in Latin America. “As we work to monetize sharing, growth in ARM, revenue and viewing will become more important indicators of our success than membership growth,” it said.
In Q4 2021, Netflix completed the acquisitions of visual effects company Scanline and gaming studio Boss Fight Entertainment, which had a negative $125 million in cash. The company also announced the purchase of Helsinki-based gaming company Next Games and expects to complete the transaction in the second half of 2022.
The company said that over the long-term it will pursue double-digit revenue growth, increase operating revenue faster and generate growing positive free cash flow.
