Netflix, the media streaming giant, experienced a significant boost in subscriptions, adding nearly 6 million new subscribers, following its crackdown on password sharing. As a result, the company closed the recently ended quarter with a total of 238 million subscribers and reported a profit of $1.5 billion, according to their earnings release.
The increase in subscribers comes amid a potentially crippling strike by writers and actors in the US entertainment industry. Analysts, however, believe that Netflix is better positioned than its rivals to weather the storm. Netflix’s co-chief executive, Ted Sarandos, stated during an earnings presentation that they are continuously negotiating with everyone across the industry and expressed the need to conclude the strike to move forward.
Although the subscriber growth was promising, Netflix’s revenue fell below expectations, with the company posting $8.2 billion in sales over the April to June period. Consequently, the company’s shares dipped more than 8 percent in after-hours trading on Wall Street.
In an effort to bolster revenue after facing challenges last year, Netflix expanded its crackdown on users sharing passwords beyond their immediate family. The company previously complained that over 100 million households were sharing accounts, leading them to implement stricter measures. The recent results indicate that this policy has been effective in curbing password sharing.
To attract non-paying users, Netflix introduced “borrower” or “shared” accounts, allowing subscribers to add extra viewers for a higher price or transfer viewing profiles to new accounts. Additionally, Netflix launched an ad-subsidized offering alongside the crackdown on password sharing. The company also eliminated its lowest-priced ad-free plan, which cost $10 a month in the US.
In its earnings statement, Netflix announced that the ad-supported subscription would be available in all its markets worldwide. The company’s intention to focus more on ad revenue is evident as they aim to develop advertising into a multi-billion dollar incremental revenue stream. Netflix estimates that it will generate $770 million in advertising revenue in the US this year and over $1 billion by 2024.
However, the increased focus on password sharing aligns with the heightened pressure on Netflix to expand ad revenue. As the service’s subscriber base plateaus in more countries, Netflix will likely encourage price-sensitive users to opt for its cheaper ad-supported plan. The recent Hollywood actors and writers strike could also put pressure on Netflix’s content pipeline. While the company claims to be well-prepared to weather the strike compared to competitors, it might start to feel the strain if the situation prolongs.
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Despite the challenges, Netflix remains confident in its content offerings and has a robust slate of releases, including popular films and series such as “Murder Mystery,” “Extraction,” “Bridgerton,” “The Witcher,” “Never Have I Ever,” “The Crown,” and “Virgin River.” The company believes that this extensive lineup will help it endure any content shortages caused by the ongoing strike, maintaining its position as a leading streaming service in the industry.
