Crackdown on Netflix Password Sharing Sparks New Subscriber Growth

Strong subscriber growth was achieved by Netflix's global password-sharing crackdown in the second quarter, which was advantageous for the business given that its competitors are struggling with failing TV businesses and expensive pivots to streaming.

After losing over one million consumers in the prior quarter, the company acquired 5.9 million subscribers as those who could no longer use the service for free shared the decision to pay for their own accounts. The business claimed that it is currently expanding that endeavor in almost all of the remaining nations.

As a result of the ongoing Hollywood writers' and actors' strikes, Netflix has reportedly spent less on programming this year. It increased its expectation for free cash flow from an earlier estimate of $3.5 billion to $5 billion.

Netflix's fortunes are diverging from those of its rivals that hold traditional TV channels, rely on theatrical releases, and are still in the early stages of developing global direct-to-consumer companies due to their primary focus on streaming and their extensive global presence.

Due in part to price reductions made abroad earlier this year, growth in areas with lower average revenue per user, and the addition of new customers late in the quarter, revenue fell short of the company's estimates. Aftermarket trade saw an 8.5% decline in shares; prior to the earnings report, the stock had increased by more than 60% in 2023.

Having a wide selection of excellent shows and movies is essential for keeping members, according to Netflix. The action movies "Extraction 2" and "The Mother," the science-fiction program "Black Mirror," and "Queen Charlotte: A Bridgerton Story" were among the most watched items during the quarter.

A long-awaited adjustment by Netflix that made many password sharers start paying for their own accounts was the crackdown on password sharing that began in May in the US and more than 100 other countries and territories. The number of persons who can share a subscription outside of the primary account holder's home is now restricted, and doing so costs extra.

Although the company's password-sharing restrictions are a significant source of new money, they run the danger of upsetting users who have long shared their accounts with friends, family, and acquaintances. Last year, Netflix reported that more than 100 million extra homes were using the service.

It had intended to implement additional limits earlier this year, but postponed the action to improve its strategy and prevent offending customers. With 238.4 million subscribers at the conclusion of the second quarter, Netflix.

This week, Netflix announced that it would stop selling its cheapest, $9.99/month ad-free option. The company now offers monthly plans starting at $6.99 with ads and going up to $19.99 with the highest-quality stream.

In the most recent quarter, new subscriptions outnumbered subscriber cancellations, and Netflix reported "healthy conversion" of borrowers to paying customers as well as interest for its extra-member function.

In addition to its push for paid-sharing, Netflix is attempting to increase its revenue by running advertisements. Late last year, it entered the advertising industry, and on Wednesday it stated that it is "working hard to scale the business."

According to the company's shareholder letter, the number of Netflix ad-tier members has doubled since the first quarter, but they still make up a very tiny portion of the total subscriber base.

According to subscription-analytics company Antenna, the ad tier made up 3.3% of Netflix's U.S. subscribers at the end of June, up from 1.7% at the end of March. According to Antenna data, 17% to 20% of Netflix's brand-new U.S. subscribers choose the ad-tier in each month of the second quarter.

Its second quarter net profit increased by more than 6% to $1.5 billion, exceeding the company's prediction of $1.3 billion. To $8.2 billion, revenue climbed by roughly 3%, falling just short of the company's forecast.

In the second quarter, the company's operating margin increased to 22.3% from 19.8% a year earlier and exceeded its projection of 19%.

The launch of streaming services by major entertainment companies to compete with Netflix as more people drop their cable subscriptions ranges from Walt Disney to Paramount to Warner Bros. Discovery. While Netflix routinely made money from streaming, those other companies, whose earnings for the June quarter are due to be reported in the coming weeks, have had difficulty doing so.

Currently, businesses all throughout Hollywood are also dealing with a simultaneous writers' and actors' strike that has halted production.

The decline in the ad business and the rise in cord-cutting, according to Disney CEO Robert Iger, make this "the worst time in the world" for writers and performers to go on strike, he claimed in an interview with CNBC last week.

Because production is halted, the strikes are anticipated to reduce expenses in the short term for entertainment corporations like Netflix. For the time being, international programming, reality TV, and other unscripted content, according to many media executives, can be relied upon to keep their libraries filled.

Because of its global reach, some investors believe Netflix is better protected from the effects of the strikes than other entertainment businesses. In a letter to shareholders, Netflix underlined that many of its non-English episodes and movies, including "Hunger" from Thailand and "Physical: 100" from South Korea, have consistently ranked in the top 10 of Nielsen's weekly original streaming TV or movie lists in the United States this year.


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