Netflix saw a significant boost in new customers, thanks to its crackdown on password-sharing in the U.S. and dozens of other countries, as well as its advertising-supported tier.
The Los Gatos-based streamer added 5.89 million subscribers in the second quarter, after pressuring non-paying users to sign up for their own plan or risk losing access to their favorite Netflix shows and films. The boost exceeded analysts’ expectations of 1.81 million subscriber adds, according to FactSet.
The subscriber jump boosted revenue and earnings.
Netflix’s revenue was up 2.7% to about $8.2 billion during the second quarter. Net income was about $1.5 million, compared to $1.4 million a year ago. The company slightly missed analyst expectations in revenue and beat estimates of $1.29 million in profit.
“Now that we’ve launched paid sharing broadly, we have increased confidence in our financial outlook,” Netflix said in a letter to shareholders. “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.”
The company said its password monetization efforts have reached more than 80% of its revenue base and it has seen sales increase in those regions compared to before its paid-sharing plans went into effect.
More password crackdowns at other streamers could be on the horizon if Netflix’s trajectory continues.
“If it works for Netflix, of course they’ll do it,” said Michael Pachter, a managing director at Wedbush Securities, who has an outperform rating on Netflix’s stock.
The strong quarter was expected.
June 2023 was the largest month for U.S. gross subscriber additions in the history of when data analytics firm Antenna began tracking it in 2017. There were more than 3.5 million gross adds in the U.S., up 82% from a year ago, Antenna said. That figure did not count additional revenue that Netflix gained from subscribers paying $7.99 more a month to add a non-household member to their accounts.
The boost comes after a challenging first half of 2022, when Netflix suffered subscriber declines and scrambled to increase revenues by announcing plans to crack down on password-sharing and launch a new cheaper, ad-supported plan after years of being adverse to commercials on its platform.
Those bets appear to be paying off.
The ad-supported plan, launched last year, has attracted new users to Netflix, according to data from audience analytics firm Samba TV and market research company HarrisX, which surveyed U.S. adult in March. The majority of U.S. adult Netflix customers who signed up for its $6.99 monthly ad-supported plan did not downgrade from a more expensive tier, according to the firms’ survey.
“Our data tells us that ad-supported options represent a path toward more subscriber growth and the overwhelming majority are net-new, rather than downgrading from existing Netflix plans,” said Samba TV CEO Ashwin Navin in a statement.
The cost of watching Netflix without ads has also gone up, with the company recently eliminating its cheapest ad-free tier for new or rejoining members in the U.S. and Britain. Existing U.S. users of the basic plan can continue watching without ads by paying $9.99 a month. Netflix’s standard plan costs $15.49 a month in the U.S.
In the second quarter, Netflix launched shows that attracted wide audiences. Popular programs included “Queen Charlotte” and “XO Kitty,” which were spin-offs based on the queen featured in romance series “Bridgerton” and the youngest sister in the “To All the Boys” movies.
But there are challenges ahead. Netflix and other Hollywood studios are embroiled in strikes led by film and TV writers and actors. Organized by actors guild SAG-AFTRA and the Writers Guild of America, the groups are pushing for more pay on streaming shows, protections against artificial intelligence affecting their employment and more transparency on how well programs are performing on streaming services.
Some have called it the “Netflix strike,” because the company was seen as a pioneer in changing the business models for how writers and actors get paid.
Analysts say Netflix is one of the best positioned entertainment studios in a prolonged strike because of its large catalog of content, with a significant portion that is produced abroad in places like South Korea. Some of the international programs have become worldwide successes and in general cheaper to make, including “Squid Game,” Netflix’s most popular program of all time.
“Netflix, because of its mix of catalog and in particular, its mix of international, it can back fill with Scandinavian shows, Korean shows … they can keep producing there,” Pachter said. “So they’re the least motivated to settle.”
