Netflix’s historically lax attitude towards password sharing by its users helped the company gain the position it has as the world’s most popular video streamer. But this year it started cracking down on the practice, in the hope that doing so would reverse a recent drop in subscriber numbers.
At first, it looked like the move could have been a misfire. Within Spain alone, Netflix lost a million users in three months after its crackdown began there—Canada, New Zealand, and Portugal were also early targets. However, the company stuck to its guns, extending the restrictions to around 100 more countries, including the U.S., in May. And yesterday, the results came in.
Netflix's Q2 revenues may have disappointed Wall Street, leading to a share-price drop of nearly 8%, but with Q2 subscriber growth (5.9 million) coming in at nearly three times analyst estimates, it’s clear Netflix is doing something right. The password crackdown appears to have paid off—though as tech news site Techdirt points out, that's not entirely clear—aided by Netflix’s introduction of a cheaper, ad-supported tier and an option for paying a surcharge to let someone living outside your household share the account.
“The cancel reaction was low and while we’re still in the early stages of monetization, we’re seeing healthy conversion of borrower households into full paying Netflix memberships as well as the uptake of our extra member feature,” Netflix said in a shareholder letter yesterday.
In the letter, Netflix also said it was now turning its attention to the rest of the markets in which it operates, most notably India. However, it’s not giving people in these markets the option to add others to their account for an additional fee, because “we’ve recently cut prices in a good number of these countries (for example, Indonesia, Croatia, Kenya, and India) and penetration is still relatively low in many of them so we have plenty of runway without creating additional complexity.”
It should be noted that there are some countries caught up in this final wave in which Netflix hasn’t recently cut prices, such as South Africa, and it will be particularly interesting to see how the crackdown affects user numbers there. But either way, the password-sharing shift’s final phase is now underway.
Oh, and bad news for anyone who was just about to sign up for Netflix’s $10 Basic plan, the cheapest tier without ads—it’s toast, though those who are already on it can stay on it. More news below.
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David Meyer
