How Netflix Plans to Tackle a Sharp Drop in Subscriptions

Netflix’s drop in subscribers was 200,000 global subscriptions during the first quarter of 2022. Investment analysts had actually been expecting the company to add 2.5 million subscribers in this period. During Q2, Netflix announced that it expected to lose a further 2 million global subscriptions.

At the beginning of the year, NFLX was trading at around $600 on the Nasdaq exchange. Following the subscription drop, the stock price quickly fell to under $200 and apart from brief periods, it’s been there ever since.

But how does Netflix plan to remedy this situation?

Netflix drop in subscribers

Who’s to blame? Well according to Netflix, there are a number of factors…they name:

• Increased competition

• The global economy

• The current war in Ukraine

• The large scale sharing of accounts

As well as this, the recent decision to wind up its operations in Russia is also expected to cost Netflix around 700,000 new users.

Netflix enjoys 222 million paying households globally. The company also predicts that over 100 million additional households are benefiting through shared passwords, which is impacting membership growth across many markets. The high growth during the pandemic has masked this issue, but with growth now facing significant headwinds, it’s a problem that needs to be tackled.

So, what's their plan?

1. Adverts

First up, Netflix announced plans to introduce a new tier to its traditional 3 tier pricing structure. A fourth tier would come in below Basic and include advertisements - for the first time ever.

The pros:

The lower price option can provide a more comfortable option for users during this cost of living crisis. It also offers a solution to households that may own several subscription services and want to find a package mixture that isn’t too pricey.

The cons:

The idea of bringing in ads is largely unpopular, as it seems to be going full circle back to the traditional TV set up. Streaming without ads was a big part of the value of Netflix.

2. Passwords

Netflix is trialling a password sharing crackdown in some countries, such as Peru and Costa Rica. It involves subscribers being charged a small fee to add accounts based outside of the household.

Central to the scheme is Netflix’s definition of the term ‘household’, meaning anyone inside a physical domicile. Based on the scheme's viability, it may be rolled out across other regions soon.

The pros:

This crackdown will undeniably help Netflix wheedle out the piggyback users, potentially pushing them to create an account.

The cons:

There is a risk that it’ll have the opposite effect, and instead push unhappy users to other platforms.

3. Staff

In May, Netflix laid off 150 staff from its 11,000 strong workforce, followed by 300 more jobs cut in June, representing about 4% of the total headcount. Further rounds of job cuts are expected as the company reels from the drop in subscriptions.

The pros:

Internal cost cuts can make a big difference in streamlining business spend.

The cons:

Where company culture is concerned, cuts are a big killer. Netflix needs to tread with caution to make sure their remaining staff are still working at their best to keep the business afloat.

So, what do you think? It’s important before you make any decision about your subscription startup, to weigh up those pros and cons. Think of the worst case scenario - and balance it against the best.

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