Netflix lost 970,000 subscribers in Q2. How will Spotify fare?

Credit: Netflix
Netflix's Stranger Things recently returned for its fourth season, and has been a runaway Q2 success for the platform

The successful release of the fourth season of Stranger Things couldn’t stop Netflix from losing subscribers in the second quarter of 2022 – but the video giant’s net loss of paying members wasn’t as bad as previously forecast.

According to its Q2 2022 results, published yesterday (July 19), Netflix lost nearly a million subscribers in the three months from April to June.

That represented the largest quarter-on-quarter drop in paid users in Netflix’s history. Yet it was far short of the company’s predicted Q2 net loss of 2 million subscribers – guidance that it issued when it reported dismal Q1 earnings results earlier this year.

At the close of Q2, Netflix had 220.67 million paid memberships globally (see below), down 970,000 quarter-on-quarter. (For context: Spotify had 182 million subscribers globally at the close of Q1.)

In addition, Netflix is now forecasting a net subscriber gain of 1.0 million in Q3.

There were bright spots for Netflix in Q2, too: The company’s revenue in the quarter was up 8.6% YoY, or 13% at constant currency.

And ‘ARM’ (Average Revenue Per Membership), NFLX’s equivalent of ARPU, was up 7% at constant currency YoY – a sign that price rises enacted earlier in 2022 are likely taking effect.

(ARM is defined by Netflix defined as “streaming revenue divided by the average number of streaming paid memberships divided by the number of months in the period”.)

Back in April, Netflix’s disappointing Q1 results (which revealed a Q1 net loss of 200,000 subscribers quarter-on-quarter) sparked concerns of a similar fate for Spotify.

However, Spotify managed to swim against that tide: it added 2 million listeners on a quarter-over-quarter basis in the first three months of 2022, capping off the period with 182 million users globally.

Spotify attributed its strong performance at the time to the surge in new subscribers in Latin America and Europe, which offset the drop in its user count in Russia when the company decided to cut off billing in the market amid tensions in Ukraine.

“There is no risk of Spotify losing its leading position anytime soon – but the erosion of its share is steady and persistent.”

Midia Research report covering Q2 2021

Although Spotify has started to lose a portion of its market share to smaller players in recent years, the platform continues to dominate the global subscription market.

It controlled 31% of the world’s music-streaming market in the second quarter of last year, down from 33% a year prior, but more than double that of its closest rival, Apple Music, which held a 15% share of the market.

That is according to UK-based research company MIDiA Research. MiDiA said in its report covering those numbers: “There is no risk of Spotify losing its leading position anytime soon – but the erosion of its share is steady and persistent.”

However, MiDiA also noted in January (this year) that Spotify could lose its market share to alternatives like YouTube Music, which resonates among Gen Z and younger Millennials. Other smaller rivals include Amazon Music, China’s Tencent Music and NetEase Cloud Music — despite being only available in China — plus Deezer and Yandex.

To cement its position in the industry and grow its revenue stream, Spotify has continued to diversify its business as of late by branching into video podcasts and making acquisitions of other platforms that offer services beyond music streaming.

The company recently expanded its video podcast publishing to creators in six additional countries including Germany, France, Italy, Spain, Brazil and Mexico.

Spotify also recently acquired Heardle, a music trivia game that took inspiration from the word game Wordle, which The New York Times bought in January. Heardle lets players guess a song based on its opening notes.

Additionally, Spotify last month closed its purchase of digital audiobook distribution company Findaway for an undisclosed amount, allowing the company to compete in the audiobooks market against Amazon’s Audible.

Spotify is expected to report its Q2 results next Wednesday (July 27).

SPOT’s shares closed up 5% on the NYSE on Tuesday (July 19), but down 55% year-to-date, which some financial watchers have attributed to the slow pace of growth in its new users and Premium subscribers. But with Spotify’s dominant market position, some still remain bullish on the company’s potential.

The company in April said it expects an additional 6 million net new subscribers in the second quarter, excluding the anticipated loss of 600,000 subscribers from Russia.

Spotify also pegged an increase of about 14 million net new MAUs in the second quarter, excluding the potential loss from the closure of its Russian operations.Music Business Worldwide