Netflix lost viewers for the 1st time in 10 years, says password sharing is to blame

Netflix reported Tuesday that it lost 200,000 U.S. customers in the first quarter 2022. This is the company's first decline in subscribers in over a decade.

Netflix lost viewers for the 1st time in 10 years, says password sharing is to blame

It blamed the losses on stronger competition, the Ukraine–Russia conflict and password-sharing.

The entertainment company wrote to shareholders that it relied on password-sharing within households to fuel growth. However, in addition to its 222million paying subscribers, an estimated 100,000,000 households are using another's account.

Netflix stated in a statement that it has always attempted to make sharing within a household simple, using features such as profiles and multiple streams. These features have been extremely popular but they've caused confusion about how and when Netflix can be shared with other households.

According to the company, password sharing is a way for viewers to become paying customers.

"We see that second group of people as a huge opportunity because they are clearly qualified," Greg Peters, Netflix's Chief Operating Officer, said Tuesday during the earnings call. "And so, now our job it to translate that viewing and the revenue that those consumers are generating into revenues.

Netflix stated last month that it will not ban password sharing but that it will start charging for it. The change will be tested in Chile, Costa Rica, and Peru. Users can create up to two profiles for 2,380 Chilean pesos. This is in addition to 2.99 U.S. Dollars and 7.9 Peruvian Sol.

Customers didn't react well, and some predicted that people would move their business elsewhere.

Peters stated Tuesday that it will take approximately a year for the testing to be completed and the enforcement of the change to begin, which will eventually reach the U.S. market.

The streaming numbers have increased since the COVID-19 pandemic. However, the company stated in a statement that this boost "obscured" the situation until recently.

Netflix's first quarter revenue was higher than last quarter but the year-on-year growth is slower. Netflix's first quarter revenue grew 9.8% over last year, compared with a 16% increase at the end 2021.

Netflix had predicted it would gain 2.5 million customers in the quarter but lost 200,000 customers. This figure does not include the 700,000 Russian customers who lost their accounts due to the invasion of Ukraine. In October 2011, the last time that the company reported a decrease in customers, it was in 2011.

Netflix stated that its current retention levels are "very healthy" (we believe they are among the best in this industry).

According to Ted Sarandos, CEO of Netflix, the platform received its highest engagement from scripted TV programs like Inventing Anna and Bridgerton, as well as movies like Don't Look Up or The Adam Project, and reality television series such The Ultimatum, and Selling Sunset.

According Nielsen, 26% of all television time in 2021 was spent watching streaming services. Hulu and Netflix had 6% each while YouTube and Prime Video had 3% and 1% respectively.