Netflix Sees First Subscriber Losses Ever

Netflix has certainly enjoyed its flight to the top of the heap of the streaming space, now streaming video to 60.1 million US subscribers. That's more than pay TV giants like AT&T or even Comcast, who've done their best (via usage caps and lobbying shenanigans) to unsuccessfully hamper Netflix's meteoric rise.

But there's some indication that the company may have started to reach its high water mark. Netflix this week revealed it lost 130,000 subscribers last quarter, the company's first quarterly subscriber loss in history. The losses come despite Netflix having spent $3 billion on programming last quarter, and another $600 million to market its its wares. The loss was quick to rekindle memories of Netflix's bumbled Qwikster, price hike debacle from back in 2011:

"Investors had been forgiving about the spending and the debt -- so long as customers grew at record rates. But the loss of subscribers in the U.S. was the first since the Qwikster debacle, and it suggests Netflix may be running into price resistance or the limits of the addressable domestic market. The company has forecast it can reach as much as 90 million customers in the U.S., compared with 60.1 million currently."

In a letter to investors, Netflix downplayed the rise of streaming competition, blaming the losses on its own price hikes and a fairly underwhelming content slate during the quarter:

"Our missed forecast was across all regions, but slightly more so in regions with price increases. We don't believe competition was a factor since there wasn't a material change in the competitive landscape during Q2, and competitive intensity and our penetration is varied across regions (while our over-forecast was in every region). Rather, we think Q2's content slate drove less growth in paid net adds than we anticipated.

Given all the premature hand wringing and predictions of doom that surrounded Netflix after the Qwikster face plant, anybody suggesting Netflix will suddenly start to free fall is likely jumping the gun. Netflix's third quarter kicked off with the launch of Stranger Things season three, which will likely help drive subscriptions skyward again. And Netflix executives also seem to be slowly realizing that throwing around billions of dollars for mediocre international content at a mind-boggling scale may not be the winning strategy they originally surmised.

That said, this is only really the beginning of Netflix's challenges. Giants like Disney, AT&T, and Comcast are all rushing to pull their growing slate of TV shows and movies from Netflix and shift them exclusively to their own new streaming platforms. Studies suggest that nearly every broadcaster will launch their own streaming service by 2022. That's not only going to create greater losses due to competition, but the added cost and confusion of so many exclusivity silos is going to likely drive a significant number of users back to piracy, something the streaming sector hasn't really figured out yet.

In other words, despite a lot of pearl clutching Netflix is likely to clear its current hurdles. It's the rise of an ocean of streaming exclusives (especially by telecom providers given the death of net neutrality) and a shift back to piracy Netflix will really need to worry about over the next five years.