Netflix's Subscriber Adds Aren't Good for Password Sharers

Netflix’s password-sharing crackdown is here to stay. In the second quarter, the streamer added 5.9 million new subscribers, reaching 238.4 million globally. And in the U.S., Netflix added 1.17 million paid subscribers. Those additions come after Netflix rolled out its paid account-sharing initiative in more than 100 countries, including the U.S., in May. The company now said it will launch paid sharing in almost all remaining countries after seeing fewer-than-expected cancellations. “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," Netflix said in its Q2 shareholder letter. "We are revenue and paid membership positive vs. prior to the launch of paid sharing across every region in our latest launch." Though Netflix added only 1.75 million global subscribers in the first quarter, it expects its third quarter to have similar paid net adds as quarter two. In Virtual Upfront, Netflix Says It Has Nearly 5 Million Monthly Ad-Tier Users In the U.S. and several other countries where paid sharing has already launched, the account holder can add a member outside of the home for an additional $7.99 a month, or the user can opt to transfer their profile to a new account. The extra member offering will not be available in the remaining countries yet to launch password sharing, including Indonesia, Croatia, Kenya and India, which the company said is due to the fact it recently cut prices in many of those markets. “Penetration is still relatively low in many of them, so we have plenty of runway without creating additional complexity,” the letter read. With the launch of paid sharing, Netflix has “increased confidence” in its financial outlook and is expecting revenue to accelerate “more substantially” in the second half of the year. Initially, Netflix expected a “cancel reaction” to the paid sharing rollout in the U.S. The company even pushed back the rollout date in order to take advantage of learnings from markets where the requirement had already launched. However, the company noted in its first-quarter earnings release that the password crackdown would ultimately lead to "increased acquisition and revenue." Thus far, that appears to be the case. Bye bye basic Earlier Wednesday, Netflix removed its $9.99 per month ad-free Basic tier for new subscribers in the U.S. and the U.K., a month after new Canadian subscribers lost the offering. The move is an attempt to push new subscribers to its advertising tier, coming in at $6.99 per month. At its first upfronts event in May, Netflix told buyers it had nearly 5 million monthly active users on the tier globally. Now, Netflix said membership has nearly doubled since the first quarter. However, the company said it’s still a “small membership base,” and current ad revenue is not material for Netflix. “Building an ads business from scratch isn’t easy, and we have lots of hard work ahead, but we’re confident that over time we can develop advertising into a multibillion dollar incremental revenue stream,” the most recent earnings letter said. Evolving Top 10 Last month, Netflix shifted the way it reports its weekly engagement data in its Top 10 list, opting to rank titles instead by the number of views over total hours viewed (though that information is still provided). “We think this new approach is more intuitive, and it also adjusts for run time (i.e., longer films or series don’t get an inherent advantage),” the company said. For the second quarter, Netflix pointed to series such as Beef, Season 4 of Love is Blind and Queen Charlotte: A Bridgerton Story as titles that saw high levels of engagement, as well as films like Murder Mystery 2 and The Mother.

Streaming & OTT

Netflix's Latest Subscriber Gains Aren't a Good Sign for Password Sharing

The company added 5.9 million new paying customers

Mollie Cahillane

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Mollie Cahillane