MICHAEL LIEDTKE (AP Technology Writer)
SAN FRANCISCO (FloridaToday.news) — Netflix experienced its biggest springtime subscriber surge since the early days of the pandemic three years ago, in the latest sign that the recent crackdown on password sharing and the rollout of a cheaper version of its video streaming service is paying off.
The video streaming service added 5.9 million subscribers between April and June, according to data released Wednesday along with its latest quarterly financial results. The gain easily exceeded the roughly 2.2 million additional subscribers expected by analysts polled by FactSet Research. Netflix ended June with 238.4 million subscribers worldwide.
Investors appeared unsatisfied, perhaps agitated, by management’s comments in a shareholder letter warning of a “pretty competitive battle” going on amid ongoing strikes by both the writers’ union and the actors in the US, which are already swamping much of Hollywood and threatening to clog the pipelines supplying entertainment to streaming services. Netflix’s share price fell more than 6% in extended trading on Wednesday. The decline could also be due to the fact that some investors have taken profits while the stock has risen more than 50% this year.
Financial manager Louis Navelier said Netflix now looks “blocked and loaded” again after going through a tumultuous period that saw it lose 1.2 million subscribers in the first half of last year. While Netflix has bounced back this year, Investing.com analyst Jesse Cohen believes another slowdown could be coming. “It will be challenging for Netflix to sustain this rate of subscriber growth going forward,” Cohen said.
Netflix predicts subscriber growth between July and September will be similar to the numbers released from April to June.
The second-quarter results marked Netflix’s biggest spring — traditionally the company’s slowest growth — since hitting 10 million subscribers in the same period in 2020 in a very different market environment.
In 2020, people were still mostly at home looking for ways to have fun while governments around the world struggled to find a way to contain the spread of the pandemic. Now Netflix is trying to bounce back from slowing growth amid fierce competition in video streaming and inflationary pressures that have forced many households to cut spending, especially on non-essential items like entertainment.
As an antidote, Netflix last year introduced a low-cost option that included ads and then began blocking the rampant password sharing that allowed an estimated 100 million people worldwide to watch its series and movies for free. Free viewers must now open their own accounts unless a subscriber with a standard or premium plan agrees to pay an $8 monthly surcharge to allow more people living in different households to watch.
In a letter to shareholders, management said the crackdown on password sharing is leading to a “healthy transition from borrowing households to full-time Netflix members.”
And Netflix still hasn’t finished tinkering. As part of Wednesday’s earnings report, Netflix also said it was phasing out its cheapest ad-free plan, a service that costs $10 in the US. Existing subscribers already paying for this basic plan will be able to keep it. The shift appears to be intended to encourage more people to upgrade to the $7 monthly plan, which includes ads, in hopes of boosting ad revenue or signing up for the standard $15.50/month plan or the $20/month premium plan.
“While we have made steady progress this year, we still have a long way to go to accelerate our growth,” Netflix management told shareholders in a letter.
The pricing changes already made helped Netflix increase its second-quarter revenue by 3% year-over-year to $8.2 billion, below analysts’ forecasts. Netflix earned $1.49 billion during this period, up from $1.44 billion last year. But earnings per share were $3.29 per share, beating the average analyst estimate of $2.85 per share, according to FactSet.
Netflix hasn’t delved into the potential impact of the current writers’ and actors’ strike in the US. The dispute revolves mainly around the payment system used in video streaming and the development of artificial intelligence technologies that threaten to take advantage of the work of people and eventually replace them.
Unlike traditional film and TV studios in the US, Netflix was able to fill its entertainment network with shows that it could use to attract and retain subscribers.