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Netflix Loses Nearly 1 Million Subscribers and Breathes a Sigh of Relief

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Disaster has been averted at Netflix.

The streaming giant said in its earnings report on Tuesday that it lost nearly a million subscribers within the second quarter. That’s the most important subscriber defection in company history, but far wanting the 2 million it forecast during its dismal first quarter report in April.

When Netflix announced that it lost 200,000 subscribers in the primary quarter and expected to lose many more within the second, it suggested to many in Hollywood and on Wall Street that the halcyon days of infinite growth within the streaming business had come to an end.

The corporate still had a rough three months, but its revenue did grow 9 percent to $7.9 billion, a number that will have been higher had the worth of the dollar not pushed down the worth of currencies across the globe. Overall, Reed Hastings, a Netflix co-chief executive, called it “less bad results.” He added that “it’s tough losing a million subscribers and calling it successful.”

Netflix, which now has about 220.7 million subscribers worldwide, told investors that it could add back a million in the approaching quarter. And Mr. Hastings is bullish on the longer term of streaming. “It’s the tip of linear TV over the subsequent five, 10 years,” he said during a taped earnings call after the close of trading on Tuesday.

In a letter to shareholders, Netflix said it will keep its deal with providing streaming content to subscribers and never worry about other potential revenue streams, as its primary competitors do.

“This freedom means we will offer big movies direct to Netflix, without the necessity for prolonged or exclusive theatrical windows, and let members binge-watch TV in the event that they want, without having to attend for a recent episode to drop each week,” the corporate said. “This deal with selection and control for members influences all elements of our strategy, creating what we consider to be a major long-term business advantage.”

Netflix has spent the past three months adjusting its business to higher meet the challenges it expects to be facing the remainder of the yr. The corporate laid off about 450 employees. (It had $70 million in severance costs because of this of the downsizing.) In April, it announced it will introduce a cheaper subscription tier that may feature promoting — reversing its long-held stance to never have commercials on its service. Netflix intends to start out its lower-cost promoting tier within the early a part of 2023 in a “handful of markets where promoting spend is important,” a development analysts are cautiously optimistic about.

“Beyond additional subscriptions, ads may even provide an upside to Netflix in the shape of a recent revenue stream from brands which might be wanting to reach the platform’s addressable audience,” said Mike Proulx, a vp at Forrester. “But scaling its ad business will take time.”

And Netflix said it will begin to crack down more forcefully on password sharing so as to effectively monetize the 100 million users whom Netflix said used its service without paying for it. On Tuesday, Netflix said it had introduced two approaches to this in Latin America, so as to learn which is simpler. One allows customers to “add extra member,” and the opposite allows users to “add a house” for an additional $3 a month.

“Not only were losses not as bad, but expecting growth in Q3, even when it’s modest growth, might be pretty encouraging to people,” said Richard Greenfield, managing director at LightShed Ventures, adding that the corporate’s pronouncement that it was expecting substantial free-cash-flow growth in 2023 to be essentially the most significant news of the quarter.

“They’re mainly saying that while everyone else within the industry is losing billions of dollars, not only are they making a living in 2022 they’re going to make lots of money in 2023 and beyond,” Mr. Greenfield said.

Along with its business issues, Netflix received fewer Emmy nominations this month than its primary rival, HBO, despite featuring more programming than the cable network and its streaming offshoot, HBO Max. HBO picked up 140 nominations to Netflix’s 105, a mirrored image of the problem of continually producing quality, buzzworthy entertainment.

Wall Street soured on the streaming giant after its first-quarter report, with shares of Netflix down 46 percent since April and down near 70 percent for the reason that starting of the yr.

Netflix shares rose greater than 7 percent in after-hours trading on Tuesday.

Within the second quarter, Netflix lost 1.3 million subscribers in the USA and Canada, compared with a lack of 400,000 for a similar period in 2021. It increased revenue 10 percent and said subscriber retention had improved over the course of the quarter.

Revenue grew 23 percent within the Asia-Pacific region, where the corporate added 1.1 million subscribers. In Latin America, subscriptions stayed flat, but revenue increased 19 percent from a yr earlier.

The service was specifically buoyed by the strong performance of Season 4 of “Stranger Things,” which Netflix said had generated 1.3 billion hours viewed, essentially the most for an English-language show. It also benefited from a surge in renewed interest within the songs “Running Up That Hill” by Kate Bush and “Master of Puppets” by Metallica, which were featured on the show.

Netflix’s film gains were more modest. “We’re making good progress in film,” the letter said. “Hustle,” the Adam Sandler basketball movie, generated essentially the most user interest within the quarter, with 186 million hours watched. “Senior Yr,” with Rebel Wilson, grabbed user attention for 161 million hours. The corporate is investing more in animation, announcing Tuesday that it had acquired the Australian animation studio Animal Logic.

“I believe it’s really essential that in tough economic times, consumers see that Netflix has tremendous value,” the opposite co-chief executive, Ted Sarandos, said in response to an issue about how the corporate sees itself holding up in an economic downturn. He pointed to the film “The Gray Man,” which is able to turn into available on the service on Friday.

“That is an infinite, big-budget motion film that normally people would need to exit and spend an infinite amount of cash on to go see, and it’s going to premiere on Netflix,” he said. (The film was released in about 450 movie theaters last week.)

Despite the upbeat forecast for the third quarter, some analysts remain concerned that the series and films Netflix has coming the remainder of the yr will suffer compared with its competitors’ offerings.

“To me, the large issues are the standard of the content,” said Matthew Harrigan, an analyst at Benchmark. He pointed to HBO, which will probably be releasing its “Game of Thrones” prequel, “House of Dragon,” in August, while Amazon is unveiling “Lord of the Rings: The Rings of Power” in September.

“‘The Crown’ on Netflix might be the highest-profile Q4 show they’ve,” he added.

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