Netflix adds 6 million subscribers after password crackdown

Netflix on Wednesday said subscriptions to the streaming television service climbed by nearly 6 million in the wake of its crackdown on password sharing.

The streaming giant finished the recently ended quarter with a total of 238 million subscribers and a profit of $1.5 billion, according to an earnings release.

“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 letter to shareholders.

Revenue however came in lower than expectations with Netflix posting $8.2 billion in sales over the April to June period.

The company’s shares lost more than 5 percent in after hours trading on Wall Street.

Netflix in May expanded its crackdown on users sharing passwords with people beyond their immediate family as it seeks to shore up revenue at the leading streaming television service.

In its earning statement, the company said that the policy would expand to all its markets worldwide.
Netflix said earlier this year that more than 100 million households were sharing accounts at the service “impacting our ability to invest in great new TV and films.”

In most markets, Netflix has introduced “borrower” or “shared” accounts, in which subscribers can add extra users for a higher price or transfer viewing profiles to separate accounts.

Netflix launched an ad-subsidized offering around the same time as a crackdown, and on Wednesday eliminated an ad-free basic plan that cost $10 a month in the US.

For now, advertising revenue remains just a fraction of the company’s overall activity, but Netflix has high hopes it will grow in the coming quarters.

“Building an ads business from scratch isn’t easy and we have lots of hard work ahead, but we’re confident that over time we can develop advertising into a multi-billion dollar incremental revenue stream,” Netflix said in the letter to shareholders.

Analyst Ross Benes of Insider Intelligence estimates that Netflix will generate $770 million in advertising revenue in the US this year, and more than $1 billion by 2024.

“Netflix’s increased focus on password sharing will occur alongside heightened pressure to expand ad revenue,” Benes said.

“That is not a coincidence. As the service’s subscriber base plateaus in more countries, Netflix will focus on moving price-sensitive freeloaders to its cheaper ad-supported plan.”

The earnings report came as Netflix and other film and television makers see productions halted by an actors strike in the United States.

Screen Actors Guild (SAG-AFTRA) members joined writers who have been on strike for weeks, triggering the first industry-wide walkout for 63 years and effectively shutting down Hollywood.

Netflix co-chief executive Ted Sarandos said on an earnings call in April that the company has a “pretty robust slate of releases” and a large base of upcoming films and shows from around the world to help it endure a strike.

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