Netflix, the streaming juggernaut that has upended the entertainment industry, showed signs of vulnerability Wednesday when it reported that it had lost 126,000 paid subscribers in the United States during the second quarter. It was the first time it had shed domestic streaming customers since it started its digital service 12 years ago.
The company also said in its report to shareholders that it had significantly undershot the number of subscribers it expected to sign up for the period. Netflix added 2.7 million customers worldwide for the three months ending in June, well short of the 5 million expected by investors and down from the 5.5. million it had brought aboard in the first quarter.
The company’s stock fell more than 10 per cent after the market closed, a drop of more than US$17-billion in market value.
The second quarter is typically the company’s weakest time of year, but its performance this time was unusually poor. Netflix announced in January that it was raising prices by anywhere from 13 per cent to 18 per cent, depending on the subscription plan, with increases hitting existing subscribers in late March. In its statement on its second-quarter earnings, the company acknowledged that the higher rates had something to do with its failure to meet expectations.
Netflix decided to charge more at least partly because it burns a lot of cash, much of it borrowed, and spends wildly on Hollywood talent. The company tends to raise its prices around every 18 months.
Reed Hastings, the chief executive, brushed off the weak second-quarter performance. “Our position is excellent,” he said on a call with analysts after the release of the earnings report. He went on to list the company’s prospects: “We’re building an amazing capacity for content. Our products have never been in better shape.”
Netflix remains the United States’ largest internet television network, with more than 60 million paying subscribers in the United States. The company has said it could ultimately grab as many as 90 million total domestic customers.
Netflix also revised its forecast for the current quarter, when the new season of its original hit “Stranger Things” was made available. The company said it now expected to add more than 7 million customers during the summer months, slightly up from its previous estimate.