Netflix Lost 970,000 More Subs in Q2, Half as Many as Forecast in April

Netflix Q2 paid net subscriber losses reached 970,000, roughly half of the 2 million losses it had forecast in April (see 2204190066), reported the company in its quarterly shareholder letter Tuesday. The Q2 losses were up 385% from the 200,000 losses it sustained in Q1.

Netflix finished 2022's first half with 1.17 million net losses compared with 5.52 million in net additions in January-June a year earlier, said the letter. It’s forecasting 1 million net subscriber additions for Q3, compared with 4.4 million in net adds for the same 2021 quarter.

Netflix is targeting to launch its ad-supported VOD tier “around the early part of 2023,” having just picked Microsoft as its ad technology and sales partner (see 2207130048). Microsoft is “investing heavily to expand their multi-billion advertising business into premium television video, and we are thrilled to be working with such a strong global partner.”

The Netflix AVOD tier will “likely start in a handful of markets where advertising spend is significant,” said the letter. “Like most of our new initiatives, our intention is to roll it out, listen and learn, and iterate quickly to improve the offering.” The Netflix ad business “in a few years will likely look quite different than what it looks like on day one,” it said.

Its long-term hope “is to create a better-than-linear-TV advertisement model that’s more seamless and relevant for consumers, and more effective for our advertising partners,” said the letter. “While it will take some time to grow our member base for the ad tier and the associated ad revenues, over the long run, we think advertising can enable substantial incremental membership (through lower prices) and profit growth (through ad revenues).”

Netflix is in the early stages “of working to monetize the 100m+ households that are currently enjoying, but not directly paying for, Netflix” through shared passwords, said the letter. “We know this will be a change for our members.” It’s testing two different approaches in Latin America “to learn more,” it said. “Our goal is to find an easy-to-use paid sharing offering that we believe works for our members and our business that we can roll out in 2023.”