Los Angeles Times

Netflix’s pandemic-fueled surge in subscriber­s is petering out.

The streaming giant adds only 1.5 million subscriber­s in the second quarter.

- By Ryan Faughnder

Netflix’s subscriber growth slowed dramatical­ly in the second quarter as the surge in streaming subscripti­ons from the COVID-19 pandemic petered out, competitio­n increased and the company considered novel ways to grow its business.

The Los Gatos, Calif., streaming giant added a mere 1.5 million paying members globally in the second quarter, which is down 85% from the same period last year, when it reported 10.1 million subscriber additions.

The company also added 61% fewer subscriber­s than it did in the first quarter, when it missed projection­s with 3.98 million new accounts. In the U.S. and Canada, Netflix lost about 430,000 paid membership­s in the second quarter.

Although down significan­tly, the results were better than the 1.15 million subscriber­s Wall Street analysts had expected, according to FactSet.

Pandemic restrictio­ns drove millions of people to sign up for Netflix subscripti­ons to binge-watch their way through the public health crisis, resulting in record numbers for the company.

But with in-person entertainm­ent options open once again, analysts expect people will spend less time with Netflix than earlier in the pandemic. Restrictio­ns also delayed the production of movies and TV shows that typically fuel Netflix’s growth.

Meanwhile, competitio­n in the so-called streaming wars has heated up with the growth of streaming platforms including Disney+ and WarnerMedi­a’s HBO Max, which are trying to attract users and filmmaking talent. Netflix downplayed the effect of rivalries, citing Nielsen research saying that streaming represents just 27% of U.S. TV screen time, giving the company plenty of room to grow.

However, analysts said the competitio­n has put some pressure on Netflix as it tries to defend its position as the biggest streaming company, now with more than 209 million paying members.

“Competitio­n in the U.S. seems to finally have arrived in meaningful form given the backdrop of so many new streaming apps and the Discovery and Warner Media merger, as Netflix has actually lost subscriber­s in the U.S. and Canada region for the first time in many quarters,” Joe McCormack, senior analyst at investment research firm Third Bridge in New York, said in an email.

Netflix forecast the third quarter would bring in 3.5 million subscriber­s. Shares declined slightly in after-hours trading, after closing Tuesday down $1.23, or 0.2%, at $531.05.

Netf lix’s revenue rose 19% in the quarter to $7.34 billion, compared with a year earlier. Net income was $1.35 billion, compared with $720 million a year earlier. Analysts had expected revenue of $7.32 billion. Netflix’s earnings of $2.97 a share were worse than the $3.16 analysts projected.

With subscripti­on growth slowing, streaming services are trying to grow by spending billions on exclusive movies and TV shows to draw viewers and get them so hooked they don’t cancel.

The company is spending big on content to shore up its position in the increasing­ly crowded field of streaming video as competitor­s including Disney+, Hulu and HBO Max try to take market share. Netflix has said it plans to spend $17 billion on content this year.

Although detractors say the company’s fire-hose strategy of producing content prioritize­s quantity over quality, the service has created plenty of buzzy shows that have garnered critical acclaim.

Netflix scored 129 Emmy nomination­s for its shows, including best drama series nominees “Bridgerton” and “The Crown,” along with nods for “Cobra Kai,” “Emily in Paris” and “The Kominsky Method.” Netflix was barely topped by WarnerMedi­a’s combined 130 nomination­s for HBO and HBO Max.

Netflix must rely more on original content as rival entertainm­ent companies bring more of their shows and movies back home to put on their own streaming services.

Popular series such as “Friends” and “The Office” once were big draws for Netflix. Not anymore.

Co-Chief Executive Ted Sarandos said in an interview broadcast on YouTube that the company copes with the loss of popular licensed programmin­g by creating exciting originals.

“We go through that, we believe, by making these early investment­s in original programmin­g and getting our consumers and our members much more attuned to the expectatio­n that we’re going to create their next favorite show, not that we’re going to be the place where you can get anything every time,” Sarandos said.

Among the top films on Netflix during the quarter were Zack Snyder’s “Army of the Dead,” the Kevin Hartstarri­ng dramedy “Fatherhood” and the family comedy “The Mitchells vs. the Machines,” which Netflix said was the company’s most-watched original animated movie to date.

Last month, Netflix signed a multiyear deal for Steven Spielberg’s Amblin Partners to supply the streamer with multiple new feature films a year. The deal was notable in part because the relationsh­ip between Netflix and the Oscar winner was at one time strained.

Spielberg had in 2019 intended to propose rule changes at an Academy of Motion Picture Arts and Sciences board of governors meeting that would have required films to play in theaters exclusivel­y for at least a month to qualify for the best picture Academy Award category. The changes never occurred.

Netflix has moved to diversify its business, as well, with its move into gaming, which the company confirmed in its earnings report. It recently hired Oculus and Electronic Arts veteran Mike Verdu to lead its efforts in gaming. The strategy, Netf lix said, builds on earlier efforts in interactiv­e entertainm­ent, including the choose-your-own-adventure “Black Mirror: Bandersnat­ch” and “Stranger Things” games.

“We view gaming as another new content category for us, similar to our expansion into original films, animation and unscripted TV,” Netflix said in its quarterly letter to shareholde­rs. “Games will be included in members’ Netflix subscripti­on at no additional cost similar to films and series.”

The company in June launched an e-commerce website that sells Netflix merchandis­e and products based on and inspired by shows including “The Witcher” and “Lupin.”

 ?? NETFLIX Emmanuel Guimier ?? in June launched an e-commerce website that sells Netf lix merchandis­e and products based on and inspired by shows including “The Witcher” and “Lupin.” Above, Omar Sy plays a gentleman thief in “Lupin.”
NETFLIX Emmanuel Guimier in June launched an e-commerce website that sells Netf lix merchandis­e and products based on and inspired by shows including “The Witcher” and “Lupin.” Above, Omar Sy plays a gentleman thief in “Lupin.”

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