By Emily Caulkett-
Netflix is preparing to crack down on password sharing around the world, after its subscribers fell for the first time in over a decade.
Another 600,000 people stopped its service in the U.S and Canada after a price increase, Netflix said.
Netflix said the move was playing out “in line with expectations” and would yield more money for the firm, despite the cancellations.
The firm’s revenue in the first three months of the year was up 9.8% compared with the same period last year to more than $7.8bn (£6bn).
Shares in the company plunged more than 20% in the after-hours trading in New York following the news, wiping more than $30bn off the company’s market valuation.
The company reported a quarterly subscriber loss on Tuesday, ending Q1 of 2022 with 221.64 million subscribers, down from 221.84 million in Q4 of 2021.
In its shareholder letter, Netflix cited “the large number of households sharing accounts” as a critical factor “creating revenue growth headwinds.” Specifically Netflix estimates that “over 100 million” households worldwide are using shared Netflix accounts, including more than 30 million in the U.S. and Canada.
“This is a big opportunity as these households are already watching Netflix and enjoying our service,” the company wrote in its letter. “Sharing likely helped fuel our growth by getting more people using and enjoying Netflix. And we’ve always tried to make sharing within a member’s household easy, with features like profiles and multiple streams. While these have been very popular, they’ve created confusion about when and how Netflix can be shared with other households.”
Netflix began to explore potential password-sharing effort last year, and this March, the company rolled out a pilot program in Costa Rica, Peru and Chile, enabling additional members outside of their households if the company ID’ed that a password was being shared.
Crackdown
The company said it was left in no doubt that the crackdown will expand in the near future. Netflix expects to lose 2 million global subscribers in the current quarter.
In a surprise move Netflix executives said they were now open to adding advertising to the service – in return for a lower-priced subscription. Netflix co-founder and chairman Reed Hastings has long been opposed to adding commercials or other promotions to the service.
“There’s a broad range of engagement when it comes to sharing households from high to occasional viewing,” the company said. “So while we won’t be able to monetize all of it right now, we believe it’s a large short- to mid-term opportunity.”
Still, Netflix noted that “account sharing as a percentage of our paying membership hasn’t changed much over the years,” but added that the COVID-spurred subscriber pull-forward obscured the impact that password sharing had on its business.
“We are trying to find a balanced approach here, that supports putting our members in charge,” COO Greg Peters said on the company’s earnings call.
Peters said that there will be a process before the company moves aggressively to crack down.
“It’ll take a while to work this out and get that balance right,” Peters said. “My belief is that we will go through a year or so of iterating, and then deploying that.”
The declines came after the firm raised prices in key markets including the US and UK, while pulling out of Russia.
Netflix have warned that more losses are coming, hinting that it will start to crack down on account sharing as it pushes to sign up new members.
It warned investors it expected another two million subscribers to leave in the three months to July.
“Our revenue growth has slowed considerably as our results and forecast below show,” the company said as it released its quarterly results.
“Our relatively high household penetration – when including the large number of households sharing accounts – combined with competition, is creating revenue growth headwinds.”
Another 600,000 people stopped its service in the U.S and Canada after the price increase, Netflix said.
Netflix said the move was playing out “in line with expectations” and would yield more money for the firm, despite the cancellations.
The firm’s revenue in the first three months of the year was up 9.8% compared with the same period last year to more than $7.8bn (£6bn).
The company is also planning to explore advertising and getting revenues from customers who share accounts with family or friends..
“Those who have followed Netflix know that I’ve been against the complexity of advertising, and a big fan of the simplicity of subscription,” said chief executive Reed Hastings. “But, as much as I’m a fan of that, I’m a bigger fan of consumer choice.”
Mr Hastings said “it’s pretty clear” that ad-supported services are working for Disney and HBO.
Subscriptions
”In the UK, households cancelled more than 1.5 million streaming subscriptions in the first three months of the year, with 38% saying they wanted to save money – the highest level ever, according to research from market research firm Kantar.
Paolo Pescatore, an analyst at PP Foresight, said the subscriber loss was a “reality check” for the company, as it tries to balance retaining subscribers with raising its revenue.
“While Netflix and other services were key in lockdown, users are now thinking twice about their purchasing behaviour based upon changing habits,” he said.
Shares in the company plunged more than 20% in after-hours trading in New York following the news, wiping more than $30bn off the company’s market valuation.
Investor concerns also hit shares in other entertainment firms, including Disney.