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How Netflix plans to recover after losing 200,000 subscribers

DANIEL ESTRIN, HOST:

Netflix, the streaming TV giant, has seen its stock price take a huge hit, dropping up to 37% earlier today after news that it lost 200,000 subscribers in the first quarter of this year. It's been 10 years since that last happened. Netflix CEO Reed Hastings told investors yesterday that the company might try to claw back some revenue by cracking down on the huge number of households that watch the service for free by borrowing passwords from subscribers.

(SOUNDBITE OF ARCHIVED RECORDING)

REED HASTINGS: Remember, these are over a hundred million households that already are choosing to view Netflix. They love the service. We just got to get paid, you know, in some degree for them.

ERIC DEGGANS, BYLINE: Here to talk about what this means for Netflix and for the streaming TV world in general is NPR TV critic Eric Deggans. Hi, Eric.

DEGGANS: Hi.

ESTRIN: So 37% is a pretty significant stock drop. What is Netflix saying about why its numbers were so bad, and why did that affect its stock price so badly?

DEGGANS: Well, you know, for a company as big as Netflix, a drop of over 30% is massive. And in addition to their loss of 200,000 subscribers in the first quarter, they predicted they would lose 2 million more subscribers in the second quarter. So in a letter to shareholders, Netflix cited increased competition from other streaming services, a slowdown in the adoption of smart TVs, those hundred million households that don't pay for Netflix and outside factors like inflation and the war in Ukraine. I spoke to a couple of experts earlier today who said that Wall Street investors have been reconsidering how they valued streaming services since January, when Netflix offered some pretty conservative predictions on its future performance. So it makes sense that its underperforming now would produce this swift reaction.

ESTRIN: OK. So we heard CEO Reed Hastings say that a hundred million households are essentially getting Netflix for free by using shared passwords. So if Netflix manages to stop that, can it solve its problems?

DEGGANS: Well, I'm very skeptical. I mean, it's hard to convince consumers to pay for something that they've gotten for free over a long period of time. I mean, Netflix essentially plans to ask for a surcharge from subscribers who share passwords, but they're also trying to keep subscribers from dropping the service altogether. That's something that's called churn. And they want to build up goodwill among their customers, so that's a serious challenge.

ESTRIN: Now, does the drop in subscribers mean there are problems with Netflix's core strategy, and does it have implications for other streaming services?

DEGGANS: Well, Netflix is so big that when it sneezes, other streaming services catch a cold. So the stock price on other media companies in the streaming game also went down a bit today, including companies like Disney and Paramount Global. Netflix executives said they would develop a cheaper version with advertisements, which is something they've resisted in the past. And that's important because the company has often pushed back on suggestions that it reconsider basic elements of its strategy, like releasing all episodes of original shows at once for binge watching, which makes it tougher for series to stay in the public eye for very long.

Now, even though I've seen some critics take aim at their content, Elon Musk, for example, tweeted that, quote, "the woke mind virus is making Netflix unwatchable," whatever that means, they've had big recent hits with, like, "Squid Game" and the second season of "Bridgerton." So I think the real question is whether it's possible for any streaming service to grow at the levels necessary to satisfy Wall Street investors. And that's an answer we're probably going to see later this year.

ESTRIN: NPR's Eric Deggans. Thanks.

DEGGANS: Thank you. Transcript provided by NPR, Copyright NPR.