Netflix Prepares for Password Sharing Crackdown After Losing 200,000 Subscribers

After a massive surge of growth during pandemic-related lockdowns, Netflix is now being forced to acknowledge that it’s running out of room to grow – and will need to resort to password-sharing crackdowns to keep the numbers going up.

Netflix reports that subscriptions were down 200,000 in total from last quarter, though that total comes with context. It technically lost a whopping 700,000 subscribers due to suspending its service in Russia over the country’s attack on neighboring Ukraine. But Netflix gained 500,000 subscribers elsewhere during the period, bringing it to a 200,000 loss.

Still, even excluding Russia from the occasion and calling it a net 500,000 subscriber gain, that’s still a massive drop compared to what Netflix had forecast for the quarter originally: a gain of 2.5 million that it didn’t come anywhere near.

And it sounds like things aren’t going to improve anytime soon, even without Netflix pulling out of politically-fraught markets. Netflix is currently forecasting another massive subscriber loss of 2 million for the upcoming quarter, compared to a 1.5 million gain at the same time last year. Q2 may be a slower quarter for streaming services, but it’s not normally that slow.

In a letter to shareholders attached to its first-quarter earnings report, Netflix admitted that its revenue growth had “slowed considerably” despite the ongoing popularity of Netflix as a service. While it doesn’t help, Netflix says that competition for streaming services continues to be steep between Hulu, YouTube, Amazon Prime Video, Disney+, and everything else, the big issue the company sees at play is the prevalence of account sharing between multiple households.

“However, our relatively high household penetration – when including the large number of households sharing accounts – combined with competition, is creating revenue growth headwinds,” the letter reads. “The big COVID boost to streaming obscured the picture until recently. 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%.”

In short, too many people already have Netflix for the service to continue to grow at the exponential rates it used to, and in order to go back to that level of growth, something has to be done about password sharing so it can make money off all the folks using the accounts of their friends and family members for free. Netflix estimates that alongside 222 million subscribed households, it also has an additional 100 million users who are sharing passwords with paying households.

“Early last year we started testing different approaches to monetize sharing and, in March, introduced two new paid sharing features, where current members have the choice to pay for additional households, in three markets in Latin America,” 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.”

Overall, Netflix revenues were up 10% year-over-year. It’s still expecting another 10% year-over-year revenue increase next quarter, and for now appears committed to holding the business steady while it reimagines its business model around multi-household sharing to get growth back on track.

Rebekah Valentine is a news reporter for IGN. You can find her on Twitter @duckvalentine.

Author: Rebekah Valentine. [Source Link (*), IGN All]

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