Streaming platforms have become integral to the rhythm of modern life, revolutionizing our entertainment experience one show at a time. However, like death and taxes, the seemingly unavoidable ascent of subscription rates poses a challenge to streamers across the globe. In a surprising move amidst the tumult, Netflix has announced a hiatus on its subscription rate increases, at least for the upcoming year.
As detailed in the company’s earnings video (via Variety), Netflix’s CFO, Spencer Neumann, pointed to the platform’s “paid sharing rollout” as the main driver behind this pause. Paid sharing, or the crackdown on password sharing, is Netflix’s new response to the practice of sharing account passwords across different households. The latest approach monetizes account sharing by encouraging subscribers to create “extra member” accounts for a fee, promoting acquisition, and bolstering revenue growth.
Neumann’s statement further highlighted how the company’s anticipated growth this year will come from the surge in new memberships driven by this strategy. The new paid sharing policy mandates that subscribers sharing an account at regular rates must be connected to the same internet connection. Despite the initial wave of cancellation upon the announcement, Netflix has witnessed an encouraging trend of revenue growth acceleration, particularly in Canada, which they believe is a reliable predictor for the U.S market.
While the crackdown on password sharing was initially met with public outrage, Netflix’s recent announcement to keep the prices steady appears to be a silver lining for loyal subscribers.
Unfortunately, the company’s earnings haven’t entirely matched up with market predictions. In its Q2 earnings report, it fell short of the $8.3 billion revenue value that the markets had forecast, with a quarterly revenue of $8.19 billion. Although the company accrued almost 6 million new paid subscribers, the share prices dipped, casting a shadow on the effectiveness of the password-sharing crackdown.
Despite this, Netflix has continued to focus on its paid-sharing rollout, further refining and expanding its control measures. The platform is offering subscribers the option to transfer their Netflix profile to their own account, enabling easier device management and the creation of sub-accounts. In markets offering the lower-priced ad-supported plan, this feature is expected to be highly popular.
The password sharing restrictions also present an alternative source of revenue. It is suggested that Netflix could reap up to $3.5 billion in the U.S alone by the end of 2024 from these restrictions. Furthermore, the company aims to strike a balance between affordability and profitability by discontinuing the Basic tier and prompting subscribers towards the ad-supported plan or the Standard plan.
However, not all users are welcoming these changes. Around 35% of American adults believe their streaming subscriptions are overpriced. Despite the discontinuation of the Basic tier, there is relief in the knowledge that prices will remain stable for at least the next year.
Moreover, the streaming giant is now shifting its gaze to smaller markets, aiming to introduce new password-sharing rules without the option of adding additional members. Given the reduced pricing in these markets such as Croatia, India, Indonesia, and Kenya, the company believes this is the way to go.
As the company weaves its way through the complex tapestry of the streaming industry, this innovative approach could set a new precedent for subscription-based platforms.
The coming year will tell whether this strategy will help Netflix sail smoothly or if it will require further course corrections.
