Roughly a month ago, we told you about Netflix’s initiative to curb password sharing, starting with Chile, Costa Rica and Peru. At that time, the company said this [password sharing] practice is impeding on its “ability to invest in great new TV and films.”
That, perhaps, would be true if they don’t have more than 200 million subscribers, but since they do – we don’t buy that. The problem is that they are not growing anymore, with the likes of Disney+, HBO Max and other competitors taking a bite of the streaming pie. And not everyone wants to pay multiple streaming services every month.
The latest hint about Netflix’s move comes from the letter to its investors that was attached with the company’s first-quarter earnings. By curbing password sharing, Netflix aims to boost profitability.
“The big COVID boost to streaming obscured the picture until recently,” the letter says. “While we work to reaccelerate our revenue growth through improvements to our service and more effective monetization of multi-household sharing — we’ll be holding our operating margin at around 20%.”
That “multi-household sharing” part is the key, with Netflix saying that more than 100 million households are using another household’s account. “This is a big opportunity as these households are already watching Netflix and enjoying our service,” the company noted.
The letter continues: “There’s a broad range of engagement when it comes to sharing households from high to occasional viewing. 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. As we work to monetize sharing, growth in ARM, revenue, and viewing will become more important indicators of our success than membership growth.”
From the investors’ perspective, Netflix needs to do something now that it has reported a loss of 200,000 subscribers and is projecting a loss of 2 million subscribers over the next financial quarter. However, the CFO Spence Newman has reassured investors that subscriber growth should resume in the latter half of the year.
In the other news, Netflix CEO Reed Hastings said that cheaper plans with ads should arrive within a year or two.
“Those that have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription,” he said. “But as much as I’m a fan of that, I’m a bigger fan of consumer choice. And allowing consumers who would like to have a lower price and are advertising-tolerant get what they want, makes a lot of sense.”
Don’t know about you, but one of the reasons I always liked Netflix is that it has no ads. But I guess it makes sense for them to introduce this option and potentially reach customers who weren’t willing to pay a premium for an ad-free service. We’ll see how that goes…