Netflix is planning to take action against users who share their accounts with others, with plans to charge such users in the near future. It is estimated that more than 100 million people use an account they do not pay for, and paid sharing is seen as a potential source of new customers or sales. The streaming giant has already started testing ways to reduce account sharing in Latin America and has rolled out a plan to charge such users in four additional territories in the first quarter. Netflix had initially planned to start charging for password sharing in the US in the first quarter of 2023, but it has now announced plans to do so in the next few months.
Shares of Netflix fell by 1% to $330.47 after the announcement, but this was an improvement on a drop of up to 12% earlier. Netflix has raised its free cash flow forecast for 2023 to $3.5 billion and is predicting a growth in the second half of the year, despite reporting a lower-than-expected gain of subscribers in the first quarter. Netflix added only 1.75 million customers in Q1 2023, missing Wall Street estimates of 2.41 million new customers.
This is the second year in a row that Netflix has experienced a shaky start to the year. The streaming service lost customers in the first half of 2022 and added fewer than 9 million customers for the full 12 months, its slowest pace since 2011. Netflix has responded to its slowing growth by introducing two new initiatives: the plan to crack down on password sharing and an advertising-supported tier. The advertising tier debuted in November but has yet to contribute a material number of subscribers. The company had said that both advertising and password sharing would offer modest contributions in the first quarter of the year but would pick up over the course of the year.
Netflix has urged investors to focus on traditional financial metrics like sales and profit rather than subscriber additions. The company generated more than $2 billion in free cash flow in the first quarter and reported net income of $1.31 billion.
However, cracking down on password sharing may cause some customers to stop using the service in the short term. Netflix’s challenge is to get them to pay for their own account or pay to share the one they currently use. Either scenario would boost sales in markets like the US and Latin America. The service added just 100,000 customers in the US and Canada after losing almost 1 million customers last year. It lost subscribers in Latin America, which could be the result of the crackdown on password sharing. Despite this, Netflix remains the most popular TV network in the US, accounting for more than 7% of all TV viewing in the country each month, according to Nielsen.
The Asia-Pacific region continues to be Netflix’s biggest source of new customers. The service added 1.46 million customers there in the quarter, thanks in part to lowering prices in India and other poorer countries. Netflix says it is growing more sophisticated about pricing.
In light of these developments, Netflix's future growth will depend on how successfully it can persuade users to either pay for their own account or pay to share one they currently use. If it can do so, this will boost sales in markets like the US and Latin America, where paid sharing is common.