Netflix: Password sharing cuts yield short-term gains

Get Free Netflix Inc Updates

we will send you one myFT Daily Digest Latest Email Rounding netflix inc News every morning.

Providing the same service at higher prices suggests a lack of ideas. Netflix is ​​ending free password sharing to force freebies to pay. This resulted in an increase of 5.9 million subscribers in the second quarter of this year, which some analysts described as a show of strength. But this is only a temporary solution.

Like ride-sharing company Uber, Netflix kept the price of its streaming service low in order to attract the largest audience possible. Like Uber, it has been bombarded by rivals willing to spend big bucks to compete. Six years ago, Netflix claimed that its only real competition was sleep. It now includes a comparison of streaming competitors in its shareholder letter.

Prices are rising as its shareholders grow tired of subsidizing online services. NBCUniversal’s Peacock recently raised its cheapest monthly rate by $1, and Disney+’s US revenue per subscriber has grown 20 percent in the past year.

This means that the growth of Netflix will not be affected. With around 239 million customers, it continues to lead the segment and further growth is expected this quarter. But Netflix will have to spend more on marketing to attract those customers.

The low cost is also temporary. In a repeat of the shutdown that occurred during the COVID-19 lockdown, the Hollywood writers’ strike has halted production of movies and TV shows. That is, Netflix will spend less on content. Free cash flow is expected to be at least $5 billion this year, up from $1.6 billion in 2022. Long-term debt also decreased to $14.1 billion from $14.9 billion two years ago. One can sense that the focus is on level-headed financial decisions from the almost complete lack of conversation about video games — a costly endeavor involving Netflix as well.

But when all users who share passwords pay up or leave, Netflix will have to find new sources of revenue growth. Ad subscriptions just aren’t big enough for Netflix to put a number on. It is also a crowded field. Everyone from YouTube to Uber is trying to attract advertising dollars now.

If Netflix wants to keep its focus on paying transitions, it could do away with monthly subscriptions altogether and reduce churn by only offering annual or 18-month plans. Paying month-to-month was once a way to differentiate streaming from cable TV. That distinction is no longer necessary.

Hear Lex deputy editor Ellen Moore talk to creators, companies and critics about the next era of social media in the FT’s new Tech Tonic Podcast Series,