Netflix’s crackdown on password-sharing has proven to be a successful strategy, as the company recently announced a significant increase in subscribers. In the second quarter of this year, Netflix added 5.9 million new subscribers, marking its largest jump in subscribers since 2020, when the COVID-19 pandemic created unique market conditions. This surge in subscribers exceeded analysts’ expectations, who predicted only 2.2 million new subscribers this spring.
According to a letter to shareholders, Netflix’s efforts to curb password-sharing resulted in a high conversion rate of borrowing households into full paying Netflix memberships. This led to a higher number of new subscribers compared to cancellations. In addition, Netflix plans to phase out its cheapest ad-free plan, which currently costs $9.99 per month in the US. Existing subscribers can still keep this plan, but new subscribers will have to choose between a $6.99-per-month plan with ads or more expensive ad-free plans priced at $15.49 or $19.99 per month.
While the letter to shareholders did not delve into the ongoing strikes by writers and actors, it did mention that Netflix expects to reduce content spending this year. The unpredictability of production starts could create some volatility in cash flow. Despite this positive news, investors seemed unenthusiastic as Netflix’s stock experienced a more than 5% drop in after-hours trading. Nonetheless, the stock is still up by over 60% for the year.
In conclusion, Netflix’s efforts to combat password-sharing have resulted in a significant increase in subscribers. The company’s decision to phase out its cheapest ad-free plan and focus on higher-priced options reflects its strategy to maximize revenue. However, challenges such as ongoing strikes and content spending may impact Netflix’s financial stability.
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