Netflix Continues to Cut Offerings, Grows by 6 Million Subscribers

While subscriptions-based services feel the need to overcompensate to get a subscriber, Netflix is doing the opposite. In fact, it continues to give less and less and still manages to pull in subscribers by the millions.

On Wednesday (July 19), Netflix reported an increase in quarterly revenue and subscriptions, attributing the growth to successful initiatives aimed at curbing password sharing.

In the second quarter, the streaming giant acquired 5.9 million customers in the U.S., coinciding with its efforts to combat password sharing. This outcome suggests the crackdown on password sharing in the U.S. and the introduction of its ad-supported tier are proving successful.

Netflix announced its intention to extend the policy to all its customers. Additionally, the company plans to discontinue its cheapest no-ad subscription tier in both the U.S. and the U.K. As a result, the standard plan with ads became the most affordable option, priced at $6.99 per month. The ad-free standard and premium tiers are now available at $15.49 and $19.99 per month, respectively.

Furthermore, Netflix is grappling with the potential repercussions of the ongoing Hollywood writers and actors strikes.

As a consequence of the strike’s impact, Netflix has adjusted its free cash flow forecast for 2023, raising it to $5 billion from the previous estimate of at least $3.5 billion. This increase is primarily due to reduced spending on content.

Password Sharing Crackdown

In May, Netflix initiated a policy to discourage the use of accounts belonging to others. Subscribers were notified of this policy change, and they were given two options: either transfer a profile to someone outside of their household, allowing them to pay for their own account, or choose to pay an additional fee of $7.99 per person to maintain access to the account.

In June, PYMNTS reported Netflix saw a record number of new subscribers  after it launched its crackdown on password-sharing.

From May 25 to May 28, Netflix signed more new subscriptions than any other four-day period since streaming analytics company Antenna started compiling such data in 2019.

Read more: Netflix Signed Up 200K in Days After Password-Sharing Crackdown

Netflix implemented both the sharing crackdown and ad tier within the last year as part of its response to its first subscriber loss in over a decade in 2022. These initiatives led to a surge in Netflix’s stock. With shares rising over 60% this year, the company hit a 52-week high on Wednesday.

During the call, the company anticipated these modifications would  increase revenue from a larger customer base. Netflix plans to use the extra revenue for reinvesting in the platform.

In May, Netflix expanded its paid sharing policy to include over 100 countries, encompassing more than 80% of its revenue-generating markets.

“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,” Netflix said.

The Commercial Comeback

Media companies have been adopting ad-supported streaming as a feasible route to attain profitability.

According to PYMNTS in April, when streaming platforms like Netflix and Hulu first appeared, they triggered a shift in consumer behavior. Viewers became less willing to endure commercials and wait for weekly episode releases. However, to stay relevant with advertisers and enhance their financial performance, streaming giants have reintroduced commercials.

Read more: Commercials Return to Streaming Platforms and Reshape Brand Strategy

In a short span of seven months after its launch, about 19% of Disney Plus U.S. customers have reportedly opted for the discounted, partially ad-supported plan.

It was also discovered that 52% of Disney Plus subscribers who currently have ad-free services would continue their subscription even if there was a potential price increase. On the other hand, 18% would opt to switch to a more affordable, ad-supported tier. Approximately 14% of respondents were unsure about their decision, while 16% stated they would cancel their subscription altogether.

In May, Netflix disclosed having 5 million active users for the new ad-supported tier, and in regions where the tier was accessible, 25% of its new customers were opting for this offering.

Netflix by the Numbers

Netflix’s revenue reached $8.19 billion,  a 3% increase year over year from $7.97 billion. Net income rose to $1.49 billion, from $1.44 billion year over year.

Netflix mentioned that it was premature to provide a breakdown of revenue from the ad-supported tier, or with the number of accounts impacted by the new password policy.

However, Netflix anticipates a revenue increase in the second half of the year, attributing it to the realization of “full benefits of paid sharing” and the growth of its ad-supported plan.

Netflix has adjusted its third-quarter revenue forecast to $8.5 billion, a 7% year-over-year  increase. The company attributes this anticipated growth to the increase in average paid memberships.

Looking Ahead

The company expects that paid net subscriber additions in the third quarter will be on par with those in the second quarter.

Furthermore, Netflix anticipates an acceleration in revenue growth in the fourth quarter, primarily due to the growing momentum in curbing password sharing and the rise in advertising revenue.