Netflix’s Crackdown on Password Sharing Yield Staggering Growth in Subscribers

Streaming giant Netflix, once known for its meteoric rise in subscriber numbers during the pandemic, has been grappling with a plateau in new sign-ups since the second quarter of 2020. However, recent moves by the company to curb password sharing and revamp its membership options have resulted in modest revenue growth and a push towards higher-priced plans.

In the wake of the pandemic’s impact, Netflix experienced a surge in subscribers, gaining a record 10 million in the second quarter of 2020. But since then, the company has struggled to replicate those figures, prompting changes in its platform to attract new users and boost revenue.

One significant move was Netflix’s decision to crack down on password sharing. The company estimated that nearly 100 million people worldwide were “freeloading viewers” on the platform, accessing content at the expense of another household. To address this, Netflix began blocking password sharing, prompting some public backlash. Now, these freeloaders are required to open their own accounts or join an account with a standard or premium plan subscriber, incurring an additional $8 monthly surcharge for access.

This clampdown has had a positive impact on converting “borrower households” into full-paying Netflix memberships, as reported in a shareholder letter. While the number of new subscribers may not have surged significantly, the change in strategy has resulted in a healthy conversion rate, generating a 3% increase in revenue, totaling $8.2 billion during the second quarter compared to the previous year.

As part of its efforts to attract new subscribers and increase revenue streams, Netflix announced a shift in its pricing structure. The company is phasing out its cheapest ad-free plan, priced at $10 in the U.S. While existing subscribers on this plan can continue to enjoy it, new subscribers will no longer have the option. Instead, Netflix aims to direct new customers towards its $7 monthly plan, which includes commercials, in a bid to boost ad revenue. Additionally, the company offers a standard plan for $15.50 per month and a premium plan at $20 per month, targeting viewers with different preferences and budgets.

Despite the slight increase in earnings during the second quarter, with $1.49 billion this year compared to $1.44 billion last year, Netflix still managed to exceed analysts’ expectations. Earnings per share stood at $3.29, surpassing the projected estimate of $2.85 per share, as reported by FactSet.

Netflix currently boasts a total of 238.4 million worldwide subscribers, remaining a dominant player in the streaming industry. As the platform continues to evolve its strategy and offerings, it seeks to strike a balance between cracking down on freeloaders, enticing new subscribers with various pricing options, and exploring new revenue streams through ad-supported plans.

While the recent changes may not have sparked a massive surge in subscriber numbers, they do indicate a proactive approach from Netflix to adapt to the evolving landscape of the streaming market and solidify its position in the industry. As competition in the streaming arena remains fierce, it remains to be seen how these strategic adjustments will influence Netflix’s future growth and success.