Netflix stated on Wednesday that it experienced a surge of nearly 6 million new subscribers following its recent crackdown on password sharing. The company now boasts a total of 238 million subscribers and reported a profit of $1.5 billion for the quarter. Despite a potential strike by writers and actors in the US entertainment industry, analysts believe that Netflix is better equipped than its rivals to navigate this challenging period. According to an earnings release, Netflix reported successful conversions of non-paying users into full paying members and increased adoption of its extra member feature. However, the company’s revenue fell short of expectations, reaching $8.2 billion for the April to June period, causing its shares to decline by over 5 percent in after-hours trading on Wall Street.
In May, Netflix expanded its efforts to combat password sharing beyond immediate family members in order to stabilize its revenue following a difficult year. Previously, the company expressed concerns that over 100 million households were sharing accounts. By implementing “borrower” or “shared” accounts, Netflix provides subscribers with the option to add additional viewers for a higher price or transfer viewing profiles to new accounts in an effort to convert non-paying users.
In addition to the password sharing crackdown, Netflix simultaneously launched an ad-subsidized offering. Consequently, the lowest priced ad-free plan, priced at $10 per month in the US, was eliminated on Wednesday. The decision to abolish the basic tier is seen as a strategy to enhance advertising revenue by widening the price discrepancy between advertising and non-advertising tiers. Netflix introduced the ad-supported subscription tier for $7 per month late last year.
Netflix acknowledges that its advertising business is still in its early stages, but predicts significant growth in revenue over time. The company aims to develop advertising into a multi-billion dollar incremental revenue stream, with Analyst Ross Benes estimating that Netflix will generate $770 million in advertising revenue in the US this year, and over $1 billion by 2024.
Netflix’s intensified focus on password sharing coincides with the mounting pressure to expand ad revenue. As the subscriber base plateaus in various countries, Netflix intends to shift price-sensitive individuals to its more affordable ad-supported plan.
The earnings report coincided with a strike by actors and writers in the US, causing disruption to Netflix and other film and television producers. The strike marks the first industry-wide walkout in 63 years and has led to the suspension of Hollywood operations. Despite concerns over content scarcity, Netflix co-chief executive Ted Sarandos expressed confidence in the company’s extensive slate of upcoming releases, including successful films like “Murder Mystery” and “Extraction,” as well as hit series such as “Bridgerton,” “The Witcher,” and “Never Have I Ever.” Netflix reassured shareholders with promises of more returning seasons than any other streaming service, featuring shows like “The Crown” and “Virgin River.”
