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Two years ago, Netflix was on top of the world. Public health restrictions turned binge-watching into a popular endurance sport, earning the streaming giant earned pandemic darling status and 37 million new subscribers in 2020.

All of that ended in a shocking reversal of fortune reminiscent of Seinfeld's series finale (now streaming on Netflix, thanks to a $500 million deal in 2019). On Tuesday, the company reported its first quarterly subscriber loss since 2011, falling shockingly short of its own forecasted gain of 2.5 million subscribers.

Turn On, Tune In, Drop Out

Even before Tuesday's result, Netflix's stock performance so far this year has been as unrelentingly grim as David Fincher's FBI procedural Mindhunter. Shares were already down over 40% year-to-date, after 2021 saw the company add less than half the new subscribers it drew in 2020. The troubling trend only revved up this quarter, with Netflix losing 200,000 subscribers in the first three months of 2022. The result: a revenue miss, with its $7.87 billion generated falling short of analysts' projections of $7.93 billion.

"Netflix is approaching market saturation in North America, with its nearly 75 million members comprising around 60% of all households," wrote Wedbush analysts last year, perhaps predictive of the downward trend. For its part, the streaming giant assigned blame to a multitude of outside forces:

  • Shuttering its service in Russia following the nation's invasion of Ukraine led to 700,000 lost subscribers, Netflix claims, while saying that, if excluding that impact, it would've gained 500,000 subscribers last quarter. That's still two million shy of projections, we might add.
  • Competition from other streamers like HBO Max and Disney+ -- which respectively ballooned to nearly 74 million and 130 million global subscribers last year -- ate into Netflix's market share. But perhaps not as much as its own users: the company estimates that its roughly 222 million subscribed households share their passwords with another 100 million households (apparently, its competitors somehow avoid the injustices of password sharing).

But it gets worse. Netflix said it expects to lose two million global subscribers in the current quarter.

Ad to Your Favorites: Some have suggested Netflix could turn to an old trick from the traditional television trade it had once disrupted: commercials. Streaming video ad revenue grew by 51% last year to $39.5 billion, according to the Interactive Advertising Bureau. Disney+ is adding a lower-priced advertising-supported tier this year. While Netflix co-CEO Reed Hastings once said, "No advertising coming onto Netflix. Period," last month, Netflix CFO Spencer Neumann gave a very different answer: "Never say never." On Tuesday, Hastings finally acquiesced to the ad movement, couching the revenue-generator as a matter of "consumer choice" and saying its "something we're looking at now, we're trying to figure it out over the next year or two."