Netflix has started raising subscription prices in select countries as the initial surge in new subscribers from its crackdown on password sharing begins to wane. Recent price hikes have been implemented in Japan, parts of Europe, and the Middle East and Africa, with adjustments now rolling out in Italy and Spain.
Slower Subscriber Gains Raise Investor Concerns
In its latest quarterly report, Netflix announced that it gained 5.1 million new subscribers between July and September 2024. While this number exceeded forecasts, it marks the lowest subscriber growth in over a year. The company’s vast global reach, with 282 million subscribers, makes attracting new members increasingly challenging. Investors are now looking for clear strategies from Netflix to sustain growth in the long run.
Declining Impact of Password Sharing Measures
When Netflix began its crackdown on password sharing in 2022, the strategy initially resulted in significant growth, adding over 45 million new members in just a year. However, this momentum appears to be fading. As of the third quarter of 2024, the company only recorded about 4 million new subscribers, indicating that the effectiveness of the crackdown is diminishing. Fewer people seem inclined to sign up for individual accounts now compared to the earlier surge.
Advertising Plan Gains Traction
To counteract the slowdown in subscriber growth, Netflix is increasingly focusing on its ad-supported streaming plan, which offers a lower-cost option while generating revenue through advertisements. This tier accounted for 50% of new sign-ups in regions where it’s available during the last quarter. Despite this promising figure, Netflix cautions that it remains in the “early days” of its advertising strategy, with substantial growth in this area not expected until next year.
Analysts anticipate that the advertising model will become increasingly important for Netflix’s future success. Jeff Wlodarczak from Pivotal Research notes that the company’s goal is to maintain healthy subscriber growth while leveraging its scale to raise prices and boost advertising revenue.
Financial Performance Amid Price Increases
Despite not seeing a major lift from its advertising efforts, Netflix reported solid financial results for the third quarter of 2024. Revenue rose 15% year-over-year to $9.8 billion, while profits jumped from $1.6 billion to $2.3 billion. The last price increase in the U.S. and U.K. occurred in 2023 but affected only specific plans, leaving the popular ad-free “standard plan” unchanged since 2022.
Netflix has previously tested price changes in smaller markets before rolling them out to larger ones, allowing the company to gauge consumer reactions effectively.
Adapting in a Competitive Market
As Netflix navigates the challenges of slower subscriber growth, the platform is also committed to delivering compelling new content to keep viewers engaged. Matt Britzman, a senior equity analyst at Hargreaves Lansdown, emphasizes the importance of Netflix’s financial strength in producing high-quality hits. He warns that in a competitive streaming landscape, subscribers will readily switch services if they feel they aren’t receiving value.
Britzman points out that live sports programming could be a significant opportunity for Netflix to draw in and retain viewers, an area the company has yet to fully explore.
Content Strategy and Future Growth
Despite the initial success of its password-sharing crackdown, Netflix faces a slowdown in subscriber acquisition. Recent successful releases like “The Accident” and “The Perfect Couple” helped retain subscribers but failed to replicate earlier growth rates. This highlights the need for Netflix to diversify its strategies by enhancing advertising efforts and offering premium content.
Looking to the future, Netflix is expected to focus on monetizing its advertising business and expanding its content offerings. Although the ad-supported plan has gained traction, the company has not yet shared detailed financial results for this tier, with significant contributions from advertising projected to materialize by 2026.
