Account sharing: Netflix struggles to convert 100m non-paying households

… Europe, Middle East, and Africa subscriber losses stacked to 767,000

Streaming service platform, Netflix continued to lose subscribers in the second quarter, though net global losses of 970,000 weren’t as bad as the firm’s guidance from last quarter, which had anticipated losing around two million.

Netflix on Tuesday reported its most recent financial results and ended the period with 220.67 million paid global subscribers. Its loss of nearly one million subscribers compared to net additions of 1.5 million in Q2 2021 and losses of 200,000 in the first three months of 2022.

To rescue the company, Netflix is now seeking to convert the 100 million non-paying viewers into paying customers, as it implements a raft of measures to turn around its fortunes.

Net subscriber losses in Q2 were heaviest in the U.S. and Canada where Netflix shed around 1.3 million, compared to losses of 636,000 in Q1 and losses of 433,000 the previous year. In the EMEA region (Europe, Middle East and Africa), subscriber losses stacked to 767,000 compared to gains of 200,000 in the year earlier. Latin America saw gains of 14,000 (versus 800,000 net additions in Q2 2021), while Netflix added 1.08 million net subscribers in the Asia-Pacific market.

Overall Netflix grew revenue by nine per cent year over year in Q2 to $7.97 billion. Excluding a negative $339 million foreign currency impact, revenue would have grown 13 per cent. Netflix expects slower revenue growth next quarter of 4.7 per cent year over year to reach $7.8 billion. Net income in Q2 was $1.44 billion.

After two straight quarters of losses, Netflix is forecasting subscriber gains in Q3, though still more tepid than in prior years. In Q3 the streamer anticipates adding one million net subscribers, compared to the 4.4 million it added in Q3 of 2021.

In a letter to shareholders, Netflix said the company has had more time to understand issues it flagged in the first quarter related to slowing revenue growth (including connected TV adoption, account sharing, competition, macro factors including sluggish economic growth and the impact of the war in Ukraine).

“First and foremost, we need to continue to improve all aspects of Netflix. This focus on improving our core service has served us well over the past 25 years, and remains our north star to drive continuous growth,” Netflix told shareholders.

According to the report, widespread account sharing in some 100 million households across the world is causing huge stress on Netflix operations.

Account sharing has become a major headache for streaming services globally, with many moving to put an end to the practice of password sharing.

Earlier this month, MultiChoice South Africa Chief Executive Officer, Nyiko Shiburi, revealed the video entertainment company is working to reintroduce the practice of password sharing among its customers, as long as the users are in the same location.

Netflix also blamed its slowing growth on account sharing, connected TV adoption, competition and macro factors, such as sluggish economic growth and the impact of the war in Ukraine.

“In the near-term, a key priority to re-accelerate revenue growth is to evolve and improve our monetisation,” Netflix said in a letter to shareholders.

“We’re in the early stages of working to monetise the 100 million-plus households that are currently enjoying, but not directly paying for, Netflix. We know this will be a change for our members. 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.”

Netflix said it has launched two different approaches to convert non-paying households, based on its experience of controlling the account sharing problem in Latin America.

In a statement, Netflix Director, Product Innovation, Chengyi Long, said: “We’ve been carefully exploring different ways for people who want to share their account to pay a bit more. In March 2022, we launched an ‘add extra member’ feature in Chile, Costa Rica and Peru. From next month, we will launch an alternative ‘add a home’ feature in Argentina, the Dominican Republic, El Salvador, Guatemala and Honduras.”

Further, the company said it will continue to improve all aspects of Netflix, including content, marketing and product experience.