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Netflix bleeds subscribers in US and Canada with no sign of recovery

Netflix lost 430,000 subscribers in the US and Canada in the second quarter and issued weaker than expected forecasts for later in the year, rekindling investor doubts over how the streaming group will fare after the economic reopening.

The California-based company predicted it would add 3.5m subscribers in the third quarter, disappointing investors who were looking for a stronger rebound in the second half of this year. Analysts had forecast that Netflix would add 5.9m subscribers during the third quarter.

In the past year and a half, Disney, Apple, WarnerMedia, Comcast and others have launched streaming platforms, and there are now more than 100 streaming services to choose from, according to data company Ampere.

Yet on a call for investors, executives dismissed the idea that intensifying competition was behind the weaker than hoped figures.

“Does HBO or Disney . . . have a differential impact compared to the past? We’re not seeing that in the [data] we have,” said Reed Hastings, co-chief executive. “That gives us comfort.”

Traditional media companies have spent the past few years consolidating in order to compete with Netflix. Most recently, Discovery agreed to merge with WarnerMedia to build a new mega-streaming service.

Referencing the industry consolidation, Ted Sarandos, co-chief executive, told investors: “Let’s see if one plus one equals three . . . versus the typical one plus one equals two.”

Intrigue over Netflix’s plans to delve into video games helped offset weakness in their core business, lifting the shares by 0.8 per cent in after-hours trade.

Netflix last week revealed the hiring of Mike Verdu, a 30-year veteran of the gaming industry. The company on Tuesday said it would initially focus on games for mobile phones, and offer games at no extra cost to paying Netflix subscribers.

Hastings framed video games as a complement to its existing business rather than a large new profit driver. “We’re a one-product company with a bunch of supporting elements.”

In total, Netflix added 1.5m subscribers in the second quarter, just above Wall Street forecasts for 1.1m. 

After adding a record number of customers last year, subscriber growth has slowed sharply as new competitors have entered the market and people emerged from pandemic lockdowns.

New sign-ups have ground to a halt in the US, Netflix’s largest market, where the majority of coronavirus restrictions have been rolled back.

“The pandemic has created unusual choppiness in our growth,” the company’s management told shareholders. 

Netflix executives have blamed weakness on a lighter offering of shows and movies, and promised that growth would pick up in the second half of 2021 with the return of titles such as The Witcher and Sex Education.

“Covid and its variants make predicting the future hard, but with productions largely running smoothly so far, we’re optimistic in our ability to deliver a strong second half [shows],” the company said on Tuesday.

Still, Netflix remains by far the largest paid video streaming service, with 209m subscribers, compared with 104m for Disney Plus, its closest competitor. 

Revenues in the second quarter were up 19 per cent from the same period last year to $7.3bn, meeting analyst forecasts. Net income increased to $1.4bn, up from $720m a year ago.

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