It Was a Quarter to Forget for On-demand Providers

Disappointing Q2 results from Netflix and Dish’s Sling service are leading some to believe that streaming subscribers may be more cost-conscious than we thought.

Recently posted subscriber numbers for Netflix indicate that just 160,000 new domestic subs were added in the second quarter, a huge drop from the 900,000 added in the same quarter last year.

What’s to blame for the sharp drop-off in subscribers? Netflix blamed the shortfall on the high number of cancellations due to its “un-grandfathering” of longtime subscribers who are now catching up with its most recent price plan. In case you’re out of the loop, back in May Netflix began requiring customers who previously were paying $7.99 per month to pay the full price of $9.99. What’s more, customers who signed up for the $8.899 HD plan in 2014 will also be required to pay the full price—which could lead to further cancellations in the near future.

“We think some members perceived the news as an impending new price increase rather than the completion of two years of grandfathering,” explained Netflix CEO Reed Hastings.

Another factor could also be at play, and that’s the willingness of streaming customers to jump from one streaming service to another.

In what Investors Business Daily dubbed “stream cutting,” customers appear to be experimenting with the various services which are readily available. The ease of switching makes it appealing to binge-watch your way through a few favorite series on, say, Netflix, then cancel the service and see what Hulu has to offer. Without cable boxes or satellites involved, there’s little to tie anyone down to a particular service. Indeed, the very business model which had been helping streaming service providers to profit could actually be creating a great deal of instability.

While Netflix subscriptions may be slowing down, prospects for Dish Network are skidding to a halt. Dish reported a net loss of 281,000 pay-TV customers during the second quarter, which includes the estimated addition of only 49,000 new Sling subscribers (an estimate because Dish doesn’t reveal the number of Sling TV subs versus those of its core satellite TV business). Dish also issued a price increase during the second quarter.

Industry analysts speculate that such low subscriber numbers for an OTT service that’s only a year old could mean that Sling TV is already hitting a wall.

Streaming providers seem to be hitting the very same walls that cable providers have been up against, including fickle customers and price resistance. Time will tell how these issues will play out in the long run. In the meantime, it will be interesting to see whether the pay TV industry can clean up and regain some customers that it lost along the way.