Netflix’s Domestic Crisis

For years, Netflix projected it could acquire 90 million subscribers in the U.S.—and that international growth would follow a familiar hockey-stick path. But subscriber losses in its most mature, valuable market also foreshadow future impediments to Netflix’s TAM: What happens when the competition heats up there, too?

Netflix co-C.E.O. Reed Hastings. Photo: Felipe Caicedo/Getty Images

Julia Alexander

July 21, 2022

Netflix lost 970,000 subscribers and Wall Street cheered. That’s the crux of every headline that has followed the company’s not-as-spooky-as-feared earnings report from Tuesday, one encapsulated by co-C.E.O. Reed Hastings’ pitiable “less bad” verdict. But that superficial narrative belies a more fascinating story occurring on a more granular level. Netflix lost 1.3 million subscribers during the quarter in the U.S. and Canada (UCAN). This is the second quarter in a row of substantial subscriber loss in Netflix’s most penetrated, highest revenue per user and substantial market.

For years, Netflix bulls have argued that the company’s long-term growth will come from overseas, and they tend to dismiss domestic churn as a sort of to-be-anticipated outcome while they focus on other data points. For instance, Netflix did gain more than 1 million subscribers in its Asia Pacific region this quarter, which essentially abnegated its losses in the States and Canada.

But while that might be an encouraging metric, it’s not an apples-to-apples comparison from an average-revenue-per-user (ARPU) perspective. Netflix effectively traded 1.3 million subscribers generating $15.50 a month in UCAN for 1.1 million subscribers generating about $8.60 a month in APAC. The UCAN numbers aren’t merely important because of their ARPU potential; their trendlines are also harbingers of how Netflix can expect to perform in territories that haven’t yet endured the sort of subscription saturation that we’re seeing here.