Netflix Growth Sputters in Q2, Streamer Outlines Video Game Strategy

Netflix, coming off a pandemic-fueled bumper crop of subscribers in 2020, added just 1.5 million customers worldwide for the second quarter of 2021 — a significant slowdown from its previous torrid pace of growth.

The company also officially unveiled its plans to enter the video game market, eyeing it as a new category that will help it attract and retain customers. Netflix said games would be included as part of the monthly subscription price of its core service.

During Q2, Netflix lost subscribers in its key U.S./Canada region, posting a net loss of 430,000 paid streaming customers in the region. Overall, the company slightly topped its previous overall forecast, which had estimated 1 million net adds overall with customer totals “flattish” in North America and Latin America.

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The light subscriber gain for Netflix in the most recent quarter — and its loss in the U.S. and Canada — come after record-breaking subscriber additions in 2020, driven by COVID-19 lockdowns. At the same time, the company has faced a new horde of streaming competitors also fighting for market share, including Disney Plus, HBO Max, Peacock, Discovery Plus and Paramount Plus.

The Asia-Pacific region represented about two-thirds of Netflix’s global paid net adds in Q2.

“We believe our large membership base in [the U.S. and Canada] coupled with a seasonally smaller quarter for acquisition is the main reason” for its loss of subscribers in the region, the company said in its shareholder letter. Netflix noted that in Q2 2019, its lost about 100,000 paid subs in U.S./Canada and since then “we’ve added nearly 7.5m paid net adds in UCAN.”

For the second quarter, Netflix posted $7.34 billion in revenue and earnings per share of $2.97. That slightly topped analyst consensus estimates for $7.32 billion in revenue but fell short on the earnings front, as Wall Street had expected EPS of $3.15, per financial data provider Refinitiv.

Netflix shares were down about 1% in after-hours trading.

On the gaming front, Netflix said it’s in “the early stages of further expanding into games, building on our earlier efforts around interactivity (eg, Black Mirror Bandersnatch) and our Stranger Things games.”

“We view gaming as another new content category for us, similar to our expansion into original films, animation and unscripted TV,” the company said in the Q2 letter to investors. “Games will be included in members’ Netflix subscription at no additional cost similar to films and series. Initially, we’ll be primarily focused on games for mobile devices. We’re excited as ever about our movies and TV series offering and we expect a long runway of increasing investment and growth across all of our existing content categories, but since we are nearly a decade into our push into original programming, we think the time is right to learn more about how our members value games.”

Last week Netflix said it hired video game veteran Mike Verdu, formerly at Facebook’s Oculus Studios and EA, as VP of game development. Verdu reports to COO and chief product officer Greg Peters.

With the slowdown in subscriber growth, Netflix has stepped up initiatives to cultivate additional revenue streams, including merchandise, live events and potentially VR content.

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