Netflix's dip in subscribers signals the hurdles ahead for streamers

Streaming services that revolutionized how people consume entertainment are now facing a host of challenges when it comes to growing — or even sustaining — their subscriber base.

On Tuesday, Netflix's first-quarter earnings showed the streaming service lost 200,000 subscribers — its first decline since 2011. The results rattled investors, and Netflix's stock took a 37 per cent plunge by Thursday morning.

The market was expecting weak performance in this last quarter, but the extent of the drop came as a "total shock," said senior Bloomberg Intelligence analyst Geetha Ranganathan.

"It raises questions about the ultimate endgame for Netflix, of course, and for all streamers," she said.

Ranganathan pointed to a host of factors playing into Netflix's troubles, including after-effects of the pandemic, inflation and the Ukraine war. The company lost 700,000 subscribers after suspending its services in Russia last month.

However, Netflix's domination of the streaming industry has been under threat for some time, with the rise of other streaming platforms, including Amazon Prime Video, Disney Plus and HBO Max, or Crave in Canada.  

"Netflix in the past has just kind of downplayed it,' said Ranganathan.

In a conference call with investors on Wednesday, Netflix CEO Reed Hastings acknowledged the success of the platform's competitors and the impact they're having on Netflix's performance. 

"We have great competition. They've got some very good shows and films out. And what we've got to do is take it up a notch," he said.

AT&T's first-quarter earnings, released Thursday, showed HBO and HBO Max added three million subscribers so far in 2022, hitting nearly 77 million subscribers worldwide.

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While Netflix is grabbing headlines for losing subscribers, that bad news is partly a function of the streaming giant being the front-runner in the industry, with around 222 million subscribers worldwide. 

"You have all the other streamers that are kind of still trying to play catch up to Netflix," said Ranganathan. "Down the road, they're probably going to be running into these exact same problems."

The expectation from investors that Netflix would grow quarter after quarter was unrealistic, says Jon Giegengack, the founder of Entertainment Hub Research, a U.S.-based consumer research company.