Netflix raises prices as password crackdown boosts subscriptions

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Netflix’s crackdown on password sharing appears to be paying off as the streaming service added 9mn subscribers in the third quarter — well above forecasts of about 6mn.

Shares in the group rose by 12 per cent in after-hours trading as it also announced plans to raise prices for basic and premium subscribers in the US, UK and France, effective immediately.

Subscribers to the basic service in the US will see their monthly bill rise by $2 to $11.99, while premium subscriptions will rise by $3 to $22.99. Basic subscribers in the UK will pay an additional £1, or £7.99, with premium memberships rising by £2 to £17.99. 

As its subscription growth slowed last year, Netflix announced plans to crack down on rampant password sharing and introduce advertising-supported streaming options. The company said on Wednesday that the effort to limit password sharing had boosted its subscriber and revenue growth over the past two quarters, adding that the “cancel reaction” had been lower than expected.

The subscriber increase was the strongest quarterly rise since the second quarter of 2020, when Covid-19 lockdowns led to a jump in sign-ups.

“The ‘streamflation’ era is upon us, and consumers should expect to be hit with price hikes [and] password sharing limits, and enticed with ad supported options,” said Scott Purdy, KPMG’s media leader. “Today’s results show that these levers are working, at least in the short term.”

But Netflix said its advertising initiative has been slower to take off, repeating an earlier forecast that ad revenue would not be “material” in 2023. The executive tasked last year to build the ad business, Jeremi Gorman, left the company earlier this month and was replaced by former studio operations head Amy Reinhard.

Netflix’s earnings of $3.75 a share in the third quarter were above Wall Street forecasts for $3.52. It ended the quarter with 247mn subscribers, up 11 per cent from a year earlier.

The company said it had received a boost from older shows it licenses from rival studios, many of which had stopped selling programmes to Netflix after launching streaming services of their own. But Warner Bros Discovery’s HBO and NBCUniversal recently began fresh licensing deals with Netflix.

The legal drama Suits, which ended its original run in 2019, broke viewing records, racking up 1bn viewing hours on the service globally, after NBCUniversal licensed the show to Netflix this summer.

“We may have increased opportunities to license more hit titles to complement our original programming,” Netflix said.

Chief executive Ted Sarandos touted the company’s upcoming line-up, which includes the final season of The Crown and the limited series All the Light We Cannot See, directed by Shawn Levy.

Netflix acknowledged the effect of the Hollywood strikes, saying the past six months had been “challenging for our industry”. Talks between the actors union and a group representing studios and streamers fell apart last week.

Sarandos said on Wednesday that a “new demand” by the actors union to receive a portion of streaming subscriber revenue amounted to a “levy” and was not acceptable. “We’re totally committed to ending this strike,” he said. We need to get a deal done that respects all sides as soon as we can.”

The strikes had led to a $1bn reduction in investment in new content, Netflix said. “As a result, we expect 2023 cash content spend of around $13bn,” the company said. If the actors strike was resolved “in the near future” it expected to spend about $17bn of cash on content in 2024.