As Netflix seeks to sign up new subscribers following a sharp decline in subscribers, it has hinted that it will crack down on households sharing passwords. The number of households using the streaming service dropped by 200,000 due to stiff competition from rivals.
The streamer blames many factors for its subscriber exodus, including competition and widespread password sharing. In its letter to investors Tuesday, Netflix also blamed “macro factors” that affect many companies right now, such as “sluggish economic growth, increasing inflation, geopolitical events such as Russia’s invasion of Ukraine and some continued disruption from Covid.”
Pulling out of Russia cost the company 700,000 subscribers, Netflix said. But even without that, the company still would’ve missed its expectations by nearly 2 million.
Two million subscribers are expected to leave Netflix during the three months that end in July, Netflix warned shareholders.
“Our revenue growth has slowed considerably,” the firm told shareholders on Tuesday after publishing its first-quarter results.
“Our relatively high household penetration – when including the large number of households sharing accounts – combined with competition, is creating revenue growth headwinds.”
Password sharing crackdown
Netflix estimates that more than 100 million households are breaking its rules by sharing passwords.
Netflix CEO Reed Hastings previously described the practice as “something you have to learn to live with”, adding that much of it is “legitimate” between family members. Account sharing has also likely contributed to Netflix’s growth by making the platform more popular.
But on Tuesday, Mr Hastings said it was making it hard to attract new subscribers in some countries.
“When we were growing fast, it wasn’t a high priority to work on [account sharing]. And now we’re working super hard on it,” he told shareholders.
The firm said payment plans it is testing to curb password sharing in Latin America could be rolled out to other countries.
Since last month, account holders in Chile, Costa Rica and Peru must pay to add user profiles for people outside their household (the company currently allows people who live together to share their Netflix account).
Users can add up to two extra profiles for $2-$3 (£1.53-£2.30) a month each, on top of their regular fee.
Netflix said it was seeking a customer-centric solution to the rule – but did not specify how it would enforce it.
“The principle way we have is asking our members to pay a bit more to share the service outside their homes,” said Greg Peters, Netflix’s chief product officer.
Dominic Sunnebo, an analyst at research firm Kantar, warned that the plan could backfire as consumers are now looking for ways to save money.
“If the schemes to counter password sharing move too fast and too aggressively, it also risks alienating a potential future audience – many who password-share beyond the household are not actually aware they’re breaking the terms of their subscription.”
Advertising is another area that could help Netflix. Hastings has historically been strongly averse to adding commercials to the service but has changed his mind.
“Think of us as quite open to offering even lower prices with advertising,” Hastings said during Tuesday’s post-earnings call.
“Those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription,” he said. “But, as much as I’m a fan of that, I’m a bigger fan of consumer choice.”
Streaming marketplaces have already begun adding cheaper advertising tiers. Disney, Hulu, and HBO Max, a service owned by CNN’s parent company, Warner Bros. Discovery, already offer these options.
The firm raised prices across all of its US plans, with a basic plan increasing from $9 to $10 per month and a standard from $14 to $15.50.
In the UK, basic and standard plans have increased by £1 a month to £6.99 and £10.99.
Netflix said the price increases would generate more money for the company. Even with the cancellations. But analysts say the rising cost of streaming services is causing a strain on households as the cost of living rises.