Netflix will start cracking down on U.S. viewers who share other people’s accounts this quarter, and the plan to charge such customers is expected to drive growth in the second half of the year.
The company, which reported weaker-than-expected subscriber growth in the first quarter, has been testing ways to reduce account sharing in Latin America and rolled out a plan to charge such subscribers in four more regions in the first quarter.
Netflix estimates that more than 100 million people use accounts they don’t pay for, and analysts see paid sharing as a significant potential source of new customers or sales.
The company had planned to begin charging for password sharing in the United States in the first three months of 2023. Now it says it will do so in the coming months.
Netflix shares fell 1 percent to $330.47 in after-hours trading, paring losses of as much as 12 percent after the results.
In addition to forecasting a pick-up in the second half of the year, Netflix also raised its 2023 free cash flow forecast to $3.5 billion.
In Canada, one of the markets the company hit, the customer base for paid memberships is now even bigger.
“Their comments on Canadian earnings appeared to be better than some feared,” said Magalie Grossheim, senior analyst at M Science, the research arm of Jefferies Financial Group Inc.
Netflix can take an elevator. The company got off to a slow start through 2023, adding just 1.75 million customers in the first quarter, missing Wall Street expectations.
Investors expected 2.41 million new customers. But new initiatives such as a password-sharing program and a new ad-serving tier will allow “growth to accelerate in the second half of 2023,” the company predicts.
It’s the second year in a row that Netflix has gotten off to a rocky start, as the company has gone from an ambitious talent to a middle-aged star looking for the next big hit.
The streaming service lost customers in the first half of 2022 and added just under 9 million customers in the full 12 months, the slowest pace of growth since 2011, when the company pulled streaming from its DVD mail-in business. separate from.
Netflix said on Tuesday it would shut down its DVD delivery business, ending its original business after 25 years. The business has been shrinking for years.
The streaming pioneer has responded to its slowing growth by introducing two new initiatives: a plan to crack down on password sharing and an ad-supported tier.
The ad tier debuted in November, but has yet to generate significant subscriber numbers.
The company has said that both advertising and password sharing will provide modest contributions in the first quarter of this year, but pick up over the course of the year.
Netflix has urged investors to stop focusing on subscriber additions and instead focus on traditional financial metrics like sales and profits.
The company generated more than $2 billion in free cash flow in the first quarter and reported net income of $1.31 billion.
Cracking down on password sharing will cause some customers to stop using the service in the short term.
The challenge for Netflix is to get them to pay for their own account or to share the account they currently use. Both scenarios should boost sales in markets such as the U.S. and Latin America.
The service has added just 100,000 customers in the US and Canada after losing nearly 1 million customers last year. It lost subscribers in Latin America, a development likely the result of a crackdown on password sharing.
Netflix remains the most popular TV network in the US by a wide margin. According to Nielsen, it accounts for more than 7% of all TV viewing in the U.S. each month, more than double that of any paid service. According to CBS, it also surpassed the linear network.
Netflix released several hit titles this quarter, including new seasons of “Ginny & Georgia” and “The Bund,” new series “Night Walker” and the movie “You.”
The Asia-Pacific region continues to be Netflix’s larger source of new customers. The service added 1.46 million customers in the quarter, partly due to lower prices in India and other poorer countries. Netflix says it’s becoming more sophisticated when it comes to pricing.
