Netflix Password Crackdown Fuels Jump in Subscribers

Netflix experienced a surge in new subscribers this spring when they took action against password sharing. After the Netflix password crackdown, by the end of June, the company had over 238 million subscribers, with 5.9 million of them joining since March.

This growth was higher than expected and came as Netflix worked hard to recover from a drop in subscribers last spring. However, the company is currently facing challenges due to ongoing strikes in the US involving writers and actors.

As a result of the strike, Netflix plans to spend less on content this year than initially anticipated. The strike is the largest in the entertainment industry in six decades, and Ted Sarandos, the boss at Netflix, expressed the need to resolve it quickly.

Sarandos stated, “This strike is not an outcome that we wanted,” but Netflix is committed to reaching a fair agreement that benefits the industry’s future. Nevertheless, there is still much work to be done.

Slowdown in the growth of Netflix

Netflix has been dealing with a slowdown in growth since the pandemic began. The streaming service faces increased competition, rising costs for households, and what analysts consider a saturation point in some of its main markets.

Last year, it lost about 1 million accounts in the first half, but it managed to recover from those losses later on. However, the decline served as a wake-up call for the company, prompting it to take action to boost its growth prospects.

Affordable options offered by Netflix

According to Netflix, many customers were attracted to their new affordable options. The company introduced a “paid sharing” program in May, available in the UK, US, and other major markets.

The program charges an additional fee if users wish to share passwords with individuals outside their households. In the UK, the cost is just under half of the regular subscription price.

The “paid sharing” program is now accessible in over 100 countries. Additionally, last year, Netflix launched a cheaper streaming plan with advertisements, and in February of this year, it reduced prices in numerous countries.

Netflix reported that only a few people had canceled their subscriptions due to the password changes, and they believe the new “paid sharing” program will attract more subscribers in the coming months.

It’s estimated that over 100 million households currently share passwords, which goes against Netflix’s official rules.

However, the company is optimistic about the early results of the “paid sharing” program stating, “while we’re still in the early stages, we’re seeing healthy conversion of borrower households.”

Analysts opinions about Netflix’s current position in the market

Analyst Paolo Pescatore from PP Foresight praised Netflix’s subscriber gains, considering it a strong endorsement of their strategy.

However, he views the password crackdown as a short-term solution, suggesting that Netflix may need to adjust its pricing in the future. “The company is still in a far stronger position compared to rivals and remains the benchmark,” he said.

According to Brandon Katz, an entertainment industry strategist at Parrot Analytics, “Of everyone in the entertainment industry, Netflix appears to be the best positioned,” with a significant advantage over competitors, even amidst tough competition in the streaming industry.

Decreased revenue generation

Despite the increase in subscribers, Netflix’s reported revenue of $8.18 billion (£6.32 billion) disappointed investors as it only rose by 2.7% compared to the previous year. The company’s profits were $1.49 billion.

Netflix attributed the slower revenue growth to limiting price hikes in recent months. While gains from their password crackdown and new advertising efforts were not significant enough to make up for this, they expect the situation to change by the end of this year, with an increase in advertising revenue.

To encourage price-conscious customers, Netflix has discontinued its least expensive commercial-free plan in the US, UK, and Canada, pushing users toward the ad-funded version.

The company saw a nearly doubled membership in its ads plan since March, although it started from a small base.

Netflix adds 5.89 Million subscribers in Q2 of 2023 thanks to password sharing crackdown.

Netflix reported revenue of $8.2 billion, and net income of $1.5 billion.

It now has 238.4 million global paid memberships. pic.twitter.com/l90jd71LH9

— ScreenTime (@screentime) July 19, 2023

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, remarked that Netflix needs to explore various avenues for growth, as the lack of recent price increases may indicate inflation is affecting their ability to raise subscription prices.

The initial progress in advertising seems positive, but it remains uncertain whether this venture will be as profitable as anticipated.

Despite the company’s strong performance, Netflix’s shares dipped in after-hours trade, likely due to the high expectations set by investors who have been enthusiastic about the company’s plans.