Elon Musk has slammed ‘unwatchable’ Netflix for becoming infected by the ‘woke mind virus’ as the streaming giant hemorrhages subscribers.
The US company lost 200,000 users between January and March this year, a quarterly report announced yesterday, causing shares to plummet by 25 per cent, with a further 2million subscribers set to leave by June.
The service is now proposing introducing adverts and stopping password sharing to stem the exodus, which it is trialing in Chile, Costa Rica and Peru in a bid to clamp down on the estimated 10million households who use someone else’s account.
The tech firm has pinned the blame on the emergence from binge-watching during lockdown, the success of rival platforms such as Disney+, Apple TV, Now TV, Warner Bros Discovery and Paramount, the cost-of-living crisis, and pulling out of Russia in response to Putin’s horrific invasion of Ukraine.
Though Netflix has released a variety of recent hits including Squid Game, Bridgerton, Sex Education, it has also produced ‘woke’ content such as He’s Expecting, which depicts a man who becomes pregnant.
The company had also been forced to borrow $16billion in a decade to cover its productions and business costs.
Responding to a tweet about the subscription service’s devastating performance, Musk said: ‘The woke mind virus is making Netflix unwatchable.’
A follower then responded: ‘Woke mind virus is the biggest threat to the civilization.’
The world’s richest man replied to him: ‘Yes.’
Elon Musk has slammed ‘unwatchable’ Netflix, managed by CEO Reed Hastings (right) for becoming infected by the ‘woke mind virus’ as the streaming giant hemorrhages subscribers
Upon news that it had shed 200,000 subscribers, its shares plunged by 25%. So far this year, its shares are down about 40%, after markets jolted in January when it said that subscriber growth would slow significantly in 2022
New Netflix show He’s Expecting depicts a man who becomes pregnant, with some viewers turning off at its ‘woke’ programming
Fans applauded Musk’s comments with some even urging him to take over Netflix after he concludes his Twitter deal.
The Tesla founder is reportedly plotting to spend up to $15 billion of his own cash to take Twitter private and will launch a second takeover bid in 10 days.
The billionaire, who is Twitter’s second-biggest shareholder with a 9.1 percent stake, has tapped Morgan Stanley to raise $10 billion in debt and will make his next offer in a week-and-a-half, according to the New York Post.
The entrepreneur worth $273 billion is also looking to borrow against his existing 9.2 per cent in the company, which could mean several billion dollars more to make his bid, the Post reported.
Meanwhile to counter its reversal in fortunes, Netflix is considering offering a low-cost model supported by advertising and cracking down on password sharing.
The drop also stemmed in part from its decision to withdraw from Russia to protest the war against Ukraine, resulting in a loss of 700,000 subscribers.
Netflix said the Covid boom had ‘created a lot of noise’ and blamed the slowdown on the return to normality after two years of lockdowns.
The erosion, coming off a year of progressively slower growth, has rattled another key constituency for Netflix – its shareholders.
After revealing its disappointing performance, Netflix shares plunged by more than 25% in extended trading.
If the stock drop extends into Wednesday’s regular trading session, Netflix shares will have lost more than half of their value so far this year – wiping out about $150billion in shareholder wealth in less than four months.
Musk’s fans agreed with his criticism of Netflix for becoming too ‘woke’ and urged him to take over the company
The company has now started testing different ways of curbing password sharing in Chile, Costa Rica and Peru – and could extend this elsewhere if it proves successful. Bosses are also considering turning the service into a low-fee subscription supported by ads.
It is the first time that Netflix’s subscribers have fallen since the streaming service became available throughout most of the world outside China six years ago.
The company told shareholders on Tuesday: ‘Our revenue growth has slowed considerably. Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally.
‘However, our relatively high household penetration – when including the large number of households sharing accounts – combined with competition, is creating revenue growth headwinds.’
Netflix was previously stung by a customer backlash in 2011 when it unveiled plans to begin charging for its then-nascent streaming service, which has previously been bundled for free with its traditional DVD-by-mail service before its international expansion.
In the months after that change, Netflix lost 800,000 subscribers, prompting a apology from Netflix CEO Reed Hastings for botching the execution of the spin-off.
Tuesday’s announcement was a sobering comedown for a company that was buoyed two years ago when millions of consumers corralled at home were desperately seeking diversions – a void Netflix was happy to fill. Netflix added 36million subscribers during 2020, by far the largest annual growth since its video streaming service’s debut in 2007.
But Hastings now believes those outsized gains may have blinded management. ‘Covid created a lot of noise on how to read the situation,’ he said in a video conference Tuesday.
Netflix began heading in a new direction last year when its service added video games at no additional charge in an attempt to give people another reason to subscribe.
Escalating inflation over the past year has also squeezed household budgets, leading more consumers to rein in their spending on discretionary items. Despite that pressure, Netflix recently raised its prices in the US, where it has its greatest household penetration – and where it’s had the most trouble finding more subscribers.
In the most recent quarter, Netflix lost 640,000 subscribers in the US and Canada, prompting management to point out that most of its future growth will come in international markets. Netflix ended March with 74.6million subscribers in the US and Canada.
General views of the Netflix Hollywood campus on Vine on April 19, 2022
The news deepens troubles that have been mounting for the streaming service since a surge of signups from a captive audience during the pandemic began to slow.
It marks the fourth time in the last five quarters that Netflix’s subscriber growth has fallen below the gains of the previous year.
Now investors fear that its streaming service may be mired in a malaise that has been magnified by stiffening competition from well-funded rivals such as Apple and Walt Disney.
Jefferies analyst Andrew Uerkwitz told the FT that the announcement was a ‘change in tone’ from Netflix, which he said rarely acknowledged that it faced competition in the past. He added: ‘It sounds like they’re in rebuilding mode.’
Paolo Pescatore, an analyst at PP Foresight, said the subscriber loss was a ‘reality check’ for the company, as it tries to balance retaining subscribers with raising its revenue.
‘While Netflix and other services were key in lockdown, users are now thinking twice about their purchasing behaviour based upon changing habits,’ he told the BBC.
Aptus Capital Advisors analyst David Wagner said it’s now clear that Netflix is grappling with an imposing challenge. ‘They are in no-(wo) man’s land,’ Wagner wrote in a research note Tuesday.
The Los Gatos, California, company estimated that about 100million households worldwide are watching its service for free by using the account of a friend or another family member, including 30million in the US and Canada.
Previously, Netflix bosses said password sharing was ‘something you have to learn to live with, because there’s so much legitimate password sharing, like you sharing with your spouse, with your kids… so there’s no bright line, and we’re doing fine as is’.
In its shareholder note, the company said: ‘Sharing likely helped fuel our growth by getting more people using and enjoying Netflix. And we’ve always tried to make sharing within a member’s household easy, with features like profiles and multiple streams.’
This image released by Netflix shows a scene from the popular Korean series Squid Game
Simone Ashley as Kate Sharma and Jonathan Bailey as Anthony Bridgerton in Netflix series Bridgerton
Rupert Friend and Sienna Miller in new Netflix political drama Anatomy of a Scandal
In this photo illustration a computer screen and mobile phone display the Netflix logo on March 31, 2020 in Arlington
Netflix CEO Reed Hastings: Boston-born founder with Santa Cruz mansion, ‘Olympic-sized’ swimming pool and two private jets
Netflix CEO Reed Hastings in the Milken Institute Global Conference in Beverly Hills on October 18, 2021
Hastings was born in Boston, Massachusetts, attended Bowdoin College, and after considering serving in the armed forces as a Marine, joined the Peace Corps instead. He then got a masters in computer science from Stanford University in 1988.
Before Netflix, he founded Pure Software, a software troubleshooting company in 1991. He later left the company after an acquisition to start Netflix in 1997 with colleague Marc Randolph.
Netflix, which initially offered DVD rentals by mail, grew rapidly as the internet expanded and Hastings became the unchallenged boss when Randolph left in 1999. But it was when Netflix began producing its own content that the California-based company truly became a force to be reckoned with.
Hastings certainly enjoys the fruits of his labour, sharing his vast home with his wife of more than 30 years, Patty Ann Quillin, and their two adult children, musician Molly and Sean. Together, they lead a lifestyle that seems an unusual blend of high-tech luxury and pastoral charm.
It was previously reported that they own two private jets. The Santa Cruz mansion boasts an Olympic-sized swimming pool and a 12-person Jacuzzi. A home theatre – for Netflix binges, no doubt – has cutting edge Dolby Atmos surround sound, a system more advanced than most US cinemas.
And their vast garage can house 12 cars, while the driveway has space for a further 15.
Hastings said: ‘Those are over 100million households already are choosing to view Netflix. We’ve just got to get paid at some degree for them.’
In this locations, subscribers can extend service to another household for a discounted price. In Costa Rica, for instance, Netflix plan prices range from $9 to $15 a month, but subscribers can openly share their service with another household for $3.
Netflix offered no additional information about how a cheaper ad-supported service tier would work or how much it would cost. Another rival, Hulu, has long offered an ad-supported tier.
While Netflix clearly believes these changes will help it build upon its current 221.6million worldwide subscribers, the moves also risk alienating customers to the point they cancel the service.
However, Netflix is not the only streaming service finding that accounts are being cancelled, with new figures showing that more than 1.5million households in the UK alone left Disney+, Now and Apple TV+ during the first three months of the year.
While 58 per cent of households still retain at least one paid-for streaming service, the number that do so fell by 215,000 in the first quarter of this year.
‘With many streaming services having witnessed significant revenue growth during the height of Covid, this moment will be sobering,’ said Dominic Sunnebo, the global insight director at Kantar Worldpanel, the publisher of the Entertainment on Demand report.
‘The evidence from these findings suggests that British households are now proactively looking for ways to save, and the subscription video-on-demand (SVoD) market is already seeing the effects of this.’
The Kantar Worldpanel report found that 16.9 million UK households had at least one subscription service at the end of the first quarter.
While there were 1.29 million new subscriptions to SVoD services in the UK in the first three months, this was outweighed by 1.51 million cancellations.
Unsurprisingly, the world’s two most popular streaming platforms proved to have the lowest rate of customers leaving in the first quarter, with cost-conscious subscribers identifying Netflix and Amazon’s Prime Video as their ‘must-have’ services.
Kantar said that despite ‘churn’ rates – the rate at which customers cancelled subscriptions – increasing almost across all streaming platforms, there was a ‘clear difference’ in the number of subscriptions cancelled outside of Netflix and Amazon.
‘Netflix and Amazon can be seen to be hygiene subscriptions for Brits; the last to go when households are forced to prioritise spend,’ Kantar said.
‘Disney, Now TV, Discovery+ and BritBox all saw significant jumps in churn rates quarter-on-quarter.’
Prime Video’s thriller series, Reacher, and Netflix dramas Ozark and Inventing Anna proved to be the most popular shows on SVoD services in the UK in the first three months of 2022.
Kantar’s research, which was based on interviews with 14,500 people, found that cancellations of streaming subscriptions accelerated from 1.2 million a year ago and from 1.04 million during the final three months of 2021 to 1.5 million.
The first quarter of 2022 also saw the lowest ever rate of new subscribers, according to Kantar.
Amazon Prime Video led the way for new subscribers in Britain, taking a 27 per cent slice of the market, while Disney+ was second with 14 per cent and Now third on 9 per cent, just edging out Netflix and Apple TV+.
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