Netflix's Paid Password-Sharing Plan Resulted In 5.9 Million New Subscribers
Unpopular though it may have been across the world, Netflix's paid password-sharing plan has proved to be a big success for the company. The streaming service recently reported its second-quarter earnings for 2023 and Netflix beat Wall Street expectations with $8.2 billion in revenue and $1.8 billion in profits. Much of that was driven by a high number of new subscriber sign-ups.
Netflix reported 5.9 million new subscribers for the quarter, compared to losing a million subscribers in an absolutely disastrous second quarter in 2022. The company boasts that they successfully rolled out paid sharing to more than 100 countries. This is the first quarter since paid sharing was introduced in the U.S. and, given the remarkable turn of events in terms of subscriber growth, that strategy very much seems to be working. Netflix had this to say about it in its letter to investors:
"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."
The password-sharing crackdown rolled out in May, with users able to add someone to their account for an additional $7.99. Despite the groans, it's paying off. Netflix now has 238.4 million paid subscribers worldwide, and unlike other streaming services, they are cash-flow-positive. That's incredibly important, as rival streamers such as Disney+ and Max are desperately trying to reach a point of profitability. In all likelihood, not everyone is going to survive.
Growth can't continue forever
This is all very good for now, and it's one heck of a turnaround compared to last year when Netflix lost tens of billions in stock value overnight. That moment proved to be a bit of a wake-up call for the industry at large, which had been chasing streaming as the unquestioned and only future. But even with these latest numbers, Netflix has a big problem that needs to be addressed in the not-too-distant future. Eventually, they're going to hit a cap on subscribers and growth will no longer be possible. What happens when they inevitably hit that ceiling?
Unfortunately, the business model is predicated on growth, and that's what Wall Street likes to see. For now, Netflix is doing everything it can to juice the subscribers they have. They recently decided to stop offering the Basic plan, leaving people to choose from the ad-supported plan or the Standard plan, both of which generate more revenue. It's a good short term plan, but the fact remains that infinite growth is just not feasible, and they're probably much closer to hitting a cap than they were a couple of years ago. Be that as it May, Netflix was very optimistic in the letter to investors.
"Now that we've launched paid sharing broadly, we have increased confidence in our financial outlook. We expect revenue growth will accelerate in the second half of 2023 as monetization grows from our most recent paid sharing launch and we expand our initiative across nearly all remaining countries plus the continued steady growth in our ad-supported plan."
Without focusing too hard on the more distant future, in the here and now, Netflix managed to successfully execute this password-sharing initiative. Don't be surprised if other streamers try something similar.