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Variety reports that Netflix yesterday said that it suffered a lost of 970,000 subscribers during the just-completed Q2 … which wasn't nearly as bad as the two million customers that it predicted it would lose.

During Q1, Netflix lost 200,000 customers, which factored in a loss of 700,000 customers when it pulled out of Russia in the aftermath of that country's invasion of Ukraine.

According to Variety, "Netflix revealed in its Q2 letter to shareholders it currently has 220.67 million subscribers globally and is expecting to return to gains in Q3, projecting an addition of 1 million subs from July 1-Sept. 30. In a nutshell, Netflix lost 1.3 million subscribers in the U.S. and Canada, stayed flat in Latin America, lost about 770,000 in Europe and West Asia and grew by about 1 million subscribers in the Asia Pacific region."  For Q2, "Revenue was up 8.6% year over year, or '13% excluding a $339 million foreign currency impact,' per Netflix. Operating income for the quarter was $1.6 billion, with net income at $1.4 billion.

"The company also stated it took a $70 million hit for severance costs in the second quarter following several rounds of layoffs, and is adjusting its operating model for slower top-line growth."

In its analysis, the Wall Street Journal writes:

"The company is contending with growing competition from rival streaming services, a saturated U.S. market and rising inflation that observers say could crimp spending on entertainment. To boost subscriptions and revenue growth, Netflix is working on launching a lower-price, ad-supported option for consumers, and it plans to crack down on password-sharing by charging households to share accounts.

"In a letter to investors Tuesday, the company said those moves are scheduled to go into effect next year. Netflix executives said efforts to limit password sharing would have a more immediate impact on revenue than the ad-supported tier of service, which would take longer to materially help the company.

"Meanwhile, executives stressed the importance of generating hit shows and movies and aggressively marketing content likely to build buzz and draw in new customers."

KC's View:

In a lot of ways, I think there are some lessons in here for retailers.

Let's start with something that Netflix co-CEO Reed Hastings said yesterday - that "it’s definitely the end of linear TV over the next five to 10 years."  In other words, the traditional broadcast television model what we're all used to will go away, replaced by the streaming model that Netflix in many ways has pioneered.

To which I would respond … maybe.

And I say that as someone who doesn't watch a lot of broadcast television, who has largely adapted to the streaming world and the advantages/accessibility/higher quality that it tends to offer.

It has been interesting to watch Netflix adapting its behavior in recent months.  For example, the just-released fourth season of its hit show, "Stranger Things," wasn't dropped all at once for viewers' bingeing pleasure;  Netflix decided to draw it out a bit, to keep viewers coming back.

The move away from binge-centric releases actually is happening with a lot of other streaming services, as well - Disney+, Paramount+, Hulu and other streamers have taken to dropping an episode or two a week of series, believing that this is one way to create loyalty.  One way in which they differentiate themselves from broadcast network series is by having fewer episodes (10 or fewer as opposed to 22+) and higher budgets.

And Netflix also plans to launch a less-expensive, advertising-supported service in the near future … which certainly sounds a lot more like linear, broadcast television to me.

In the case of its new $200 million-budget movie, "The Gray Man," Netflix put the film into traditional movie theaters for a week before its streaming debut this weekend, and there is a lot of speculation that in select cases, it may put movies into theaters for longer periods before offering them online.  In other words, it may opt for more traditional distribution behavior.

What matters, in the end, is content - the offering of proprietary and quality intellectual property (IP) that will bring customers to Netflix as opposed to elsewhere.  Just as in retailing, it is the the offering of proprietary and quality products and services that will bring customers into the store and onto websites as opposed to going elsewhere.

I've believed for awhile that one of Netflix's weaknesses is that while it spends a ton of money on product, the quality is hit and miss and not nearly differentiating enough.  (Haven't seen "The Gray Man" yet.  I've loved the Mark Greaney books, and am hopeful without being overly confident, having been dismayed by movies such as "Spenser: Confidential" and "Red Notice," which I would describe as expensive crap.)

Let me say it again:  Retailers have to offer proprietary and quality products and services that will bring customers into the store and onto websites as opposed to going elsewhere.

Even now, as we deal with inflation and a potential recession.  Especially now, because this is a time to steal market share by aggressive and strategic marketing, not a misguided "time to get back to basics" strategy.

The Journal makes this observation:  "Netflix executives have said they need to release a hit nearly every month to keep subscribers engaged."

If you are a retailer, so do you.