Never mind its lower-cost ad-supported subscription model or a foray into gaming. Netflix Inc.’s vow to crack down on password-sharing “more broadly” during the current quarter could be the single most important financial catalyst in its near future.
The video-streaming giant, which had put off such a strategy for years until 2022, on Thursday said it intends to enforce password-sharing rules by the end of the first quarter, suggesting sometime in April. The news was part of Netflix’s quarterly earnings announcement.
whose researchers have identified shared passwords as a major reason for eroding subscription growth since 2019, acknowledged it expects some “cancel reaction,” but the long-term benefits of people paying for additional accounts will result in “improved overall revenue.”
“We anticipate that this will result in a very different quarterly paid net adds pattern in 2023, with paid net adds likely to be greater in Q2’23 than in Q1’23,” Netflix executives said. “But as borrower households begin to activate their own standalone accounts and extra member accounts are added, we expect to see improved overall revenue, which is our goal with all plan and pricing changes.”
In Latin America, Netflix has been prompting users in Chile, Costa Rica and Peru to pay for an extra sub-account if it detected someone using an account who lived outside the paying subscriber’s home. Users in Argentina, El Salvador, Guatemala, Honduras and the Dominican Republic can buy additional “homes” for anyone living outside the subscriber’s primary household. A traditional subscription will give viewers the ability to watch Netflix in one designated home, but subscribers will need to pay an additional $2.99 for each new home in which someone would be streaming through a given Netflix account.
In the days leading up to Netflix’s quarterly results on Thursday, analysts like Steven Cahall of Wells Fargo said they considered password-sharing as “the bigger focus of results, with the potential to drive an increase to consensus ’23E revenues.”
“While much of the sell-side and buy-side focus of late has been the [advertising-platform] launch, we actually think disclosure will be limited as will the impact on estimates,” Cahall wrote in a note Wednesday. “Instead, we think password-sharing is the bigger catalyst near term. If it’s put through in late Q1 it would likely mean higher churn in Q2 and then higher ARM beyond. As the Street better understands password-sharing, we see it as upside to revenue growth estimates.”
Netflix has been pursuing several strategies it long avoided — chiefly, an ad-driven platform — until a slowdown in subscription growth amid increased competition from the likes of Walt Disney Co.
Warner Bros. Discovery Inc.
and Comcast Corp.