Starting Thursday, the streaming giant says it will tackle account sharing in “almost all” of the remaining countries, which include Indonesia, Croatia, Kenya and India.
Netflix provided an update on its paid account-sharing initiative, which it says has now been expanded to more than 100 countries, representing more than 80 percent of its revenue base.
The streamer began cracking down on users who share their Netflix password in the U.S. on May 23, after launching the program in several countries around the world in early February. Now, as of the second quarter, the company reported adding 5.9 million new subscribers, reaching 238.4 million globally, and says that it has seen a limited number of account cancellations as a result of the action.
“The cancel reaction was low and while we’re still in the early stages of monetization, we’re seeing healthy conversion of borrower households into full paying Netflix memberships as well as the uptake of our extra member feature. We are revenue and paid membership positive vs. prior to the launch of paid sharing across every region in our latest launch,” Netflix said in its Q2 letter.
As part of the crackdown, a Netflix account is limited to one household and the members within it. However, in the U.S. and select other countries, the account holder can choose to add a member outside the home for $7.99 a month, or the user can transfer their profile and create their own account.
Starting Thursday, Netflix says it will address account sharing in “almost all” of the remaining countries, which include Indonesia, Croatia, Kenya and India. In those countries, Netflix says it will not offer the option of paying to add an extra member as the streamer has recently cut subscription prices there.
Thanks to the global launch of paid sharing, as well as the rollout of its advertising tier, Netflix said it has “increased confidence” in its financial outlook and now expects accelerating revenue growth in the second half of 2023, at which time it can also more fully realize the impact of the Q2 launch of paid sharing in the U.S. and more than 100 countries.
During the pre-taped earnings interview, executives continued to stress that the benefits of paid sharing would be realized on a more rolling basis, as some borrowers who were kicked off an account may not immediately sign up for a new membership but may be drawn back in by certain shows or movies. Executives did not specify exactly which tiers the borrowers went to after being kicked off an account, but said that the users were “well-qualified” and “higher tenure subscribers,” which they say should also mean higher retention.
Additionally, Netflix CFO Spencer Neumann attributed the company’s revenue growth to these new members.
“Most of our revenue growth this year is from growth in volume through new paid memberships, and that’s largely driven by our paid roll out,” Neumann said.
Many analysts had bullish expectations for Netflix ahead of the earnings, based on both paid sharing and the advertising tier.
On Thursday, the company offered fewer details on the progress of the latter, saying that ad plan membership had “nearly doubled since Q1” but that it was based off a small membership base “so current ad revenue isn’t material for Netflix.”
“Building an ads business from scratch isn’t easy and we have lots of hard work ahead, but we’re confident that over time we can develop advertising into a multi-billion dollar incremental revenue stream,” the letter reads.
Executives offered more commentary on the ad-facing side during the earnings interview, saying that the while the advertising market remains soft, the company saw “good demand” after its upfront presentation and that its inventory still remains “relatively small,” which creates a scarcity demand. Netflix is still targeting linear advertisers, rather than digital, at the moment, but Netflix co-CEO Greg Peters said the company plans to eventually target both as it builds up its advertising capabilities.
Netflix began rolling out its advertising tier in late 2022 and had nearly 5 million monthly active users as of May, according to the company. Though notably, active users is not the same metric as subscribers, as one subscription can have multiple users.
On Wednesday, Netflix removed its $9.99 advertising-free “Basic” plan for new subscribers in the U.S. and U.K. This comes a month after the streamer made the same move in Canada. The only options for consumers in those countries now are a $6.99 “Standard with Ads” tier, a $15.49 ad-free “Standard” plan and a $19.99 ad-free “Premium” plan, which offers a higher quality broadcast and more streaming options.
Asked what they had seen in Canada thus far, Peters said members either turn to the plan with ads or move into the standard plan. As for whether members have been leaving the platform entirely, he said again that these are “higher tenure subscribers” which means “better retention.”
The company’s password crackdown began in earnest in early February, with Netflix rolling out “paid sharing” plans in Canada, New Zealand, Spain and Portugal. Earlier trials were conducted in Latin America.
The date for the broader launch into the U.S. was shifted later, in order to incorporate more learnings from the earlier markets, including how to access accounts outside of the home, Netflix executives said in April.
At the time, the company said there had been a “cancel reaction” to paid sharing in each market when the news was announced, which impacts short-term member growth. However, many users later created their own profile or adopted the paid-sharing plans, which boosted membership and revenue.
“For example, in Canada, which we believe is a reliable predictor for the US, our paid membership base is now larger than prior to the launch of paid sharing and revenue growth has accelerated and is now growing faster than in the US,” Netflix said in its Q1 earnings letter.
Source: The Hollywood Reporter
