STEVE INSKEEP, HOST:
Netflix says it lost nearly 1 million subscribers between April and June.
RACHEL MARTIN, HOST:
The second quarter loss came after a first quarter loss. So why is Netflix co-founder Reed Hastings telling investors that it's a big win?
(SOUNDBITE OF ARCHIVED RECORDING)
REED HASTINGS: Tough in some ways losing a million and calling it success, but, you know, really, we're set up very well for the next year.
INSKEEP: OK. Netflix is closely watched, both because so many people watch it and because it's been a leader in video streaming, so we've called NPR TV critic Eric Deggans. Eric, good morning.
ERIC DEGGANS, BYLINE: Hi.
INSKEEP: What is the case that a loss for Netflix is a gain for Netflix?
DEGGANS: Yeah, I guess it's about managing expectations, right? You know, the answer to your question actually stretches back to April, when the company revealed that it lost 200,000 subscribers in the first quarter. And that was their largest subscriber loss in a decade. And back then, Netflix predicted they would probably lose 2 million subscribers in the second quarter. But thanks to the success this year of shows like "Stranger Things," they managed to cut that loss in half. Now, it still means they lost more than a million subscribers so far this year. And this is important because Netflix is seen as a bellwether for the entire streaming industry. And their initial stumble in April made a lot of investors kind of question, you know, whether Wall Street had overvalued the streaming industry in general. I'd say yes. And now it feels like people may have a slightly more realistic idea of how the business is actually working.
INSKEEP: Well, let's talk about what that realistic idea is. I suppose if you're in the position of Netflix, you can say we still have a big business and retrench, and it just won't be quite as big a business. Or you can say that there are still ways to grow after these losses. Do they have plans to grow?
DEGGANS: Well, Netflix talked about a few ways of boosting subscribers and revenue, including placing ads in some shows. Now, after years of resisting people like me asking why they didn't have a cheaper subscription tier where people could watch Netflix shows with some ads in them, the company has agreed to develop such an option. Now, they're working with Microsoft, and they expect to roll out this option in early 2023 to subscribers in a handful of areas with big advertising markets - I don't know, maybe New York or Los Angeles or something like that.
And I think they realize they've saturated the American TV market, and with so much competition from rivals like Disney+ and Hulu, they really need to offer less expensive options. They're also testing in Latin America a couple of different ways to charge subscribers more for sharing passwords. I think that's going to be a little tougher to pull off, even though Netflix says 100 million households might be accessing Netflix shows for free through password sharing.
INSKEEP: Well, this is really interesting to hear you talk about this, Eric, because they're not necessarily just talking about trying to increase subscribers again. They're trying to figure out how to monetize the subscribers they have or the people who are interested, although I guess these other formats could lead to different audiences of subscribers. What else does the company need to work on?
DEGGANS: Well, you know, they're basically an innovative disruptor that's become an institution. So some of the things that are at the heart of their business, which have distinguished them in the streaming world - they now need to reconsider that. For example, I think they should rethink the binge-watching model of releasing all episodes of so many series at once. The report touts the success, for example, of "Stranger Things." They said that they drew 1.3 billion hours of viewing in its fourth season this year. But it doesn't mention that that season was released in two chunks, and that allowed discussion to build among fans about the season over several weeks, and it encouraged some potential fans to check out the last two blockbuster episodes.
I think that shows that more series would benefit from seeing their episodes released over a wider space of time, giving Netflix the chance to build the new franchises that it so desperately needs.
INSKEEP: NPR TV critic Eric Deggans, thanks so much.
DEGGANS: Thank you.
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