For Netflix, Asia Pacific keeps driving subscriber growth

The Asia Pacific region (APAC), which includes India, continues to drive subscriber growth for streaming giant Netflix, offsetting the decline it is facing in the United States and Canada (UCAN) and Europe, the Middle East and Africa (EMEA).

Netflix added 1.08 million paid members in the region for the second quarter of 2022, as compared to 1.09 million paid member additions in the previous quarter and 1.02 million additions in the same quarter last year.

To be sure, the Asia Pacific is the smallest region for the company trailing UCAN, EMEA and Latin America (LATAM) but the company noted in a letter to shareholders that the region is approaching the size of its LATAM business having clocked $908 million in revenue during the quarter, a 23% increase year-over-year.

The streaming service has likely benefitted from a price reduction it made in India in December last year, but it has also impacted the average revenue per member (ARM) in the region.

In the shareholder letter, Netflix noted that its ARM in APAC declined two percent due to this price cut as well as plan mix, partially offset by higher ARM in Korea and Australia. Excluding India, the ARM in APAC region grew by four percent year-over-year on a constant currency basis.

Overall, Netflix lost 970,000 subscribers in the second quarter of 2022, which is the largest subscriber drop it has witnessed to date, but still an improvement from a two million customer loss it had forecast in April 2022. The service expects to return to customer growth in the third quarter of 2022, with a forecast of adding one million members during the quarter.

"We're talking about losing one million instead of losing two million. So, our excitement is tempered by the less-bad results," Netflix co-CEO Reed Hastings said during the company's earnings conference call on July 19.

"But looking forward, streaming is working everywhere. Everyone is pouring in. It's definitely the end of linear TV over the next 5-10 years, so very bullish on streaming. We're set up very well for the next year," he said.

After years of rapid growth, Netflix had witnessed its first quarterly subscriber loss in more than a decade in April 2022.

Since then, the company has taken several measures to adjust its strategy amid rising competition in the space. This includes cracking down on password sharing, laying off employees, and announcing a lower-priced ad-supported streaming tier, a major departure from the company's earlier stance against advertising on the platform.

In the shareholder letter, Netflix said it plans to launch this tier in early 2023. Last week, the company announced Microsoft as its global advertising technology and sales partner for the ad-supported tier.

"We'll likely start in a handful of markets where advertising spend is significant. Like most of our new initiatives, our intention is to roll it out, listen and learn, and iterate quickly to improve the offering. So, our advertising business in a few years will likely look quite different than what it looks like on day one," the company said in the letter.

Over time, the firm said it hopes to create a "better-than-linear-TV advertisement model" that's more seamless and relevant for consumers, and more effective for its advertising partners. "We think advertising can enable substantial incremental membership (through lower prices) and profit growth (through ad revenues)," it said in the letter.