Netflix (NFLX) issued its Q1 2023 earnings report on Tuesday afternoon. The company is in line to meet many of its goals for the year. However, one of its most widely-discussed initiatives is going to take some more time to roll out. The Netflix password-sharing crackdown is going to be pushed back slightly with the company noting that it will begin implementing it in the next quarter.
Here's the statement from the Netflix website:
Paid sharing is another important initiative as widespread account sharing (100M+ households) undermines our ability to invest in and improve Netflix for our paying members, as well as build our business. We’re pleased with the results of our Q1 launches in Canada, New Zealand, Spain and Portugal, strengthening our confidence that we have the right approach. As with Latin America, we see a cancel reaction in each market when we announce the news, which impacts near term member growth. But as borrowers start to activate their own accounts and existing members add “extra member” accounts, we see increased acquisition and revenue. For example, in Canada, which we believe is a reliable predictor for the US, our paid membership base is now larger than prior to the launch of paid 4 sharing and revenue growth has accelerated and is now growing faster than in the US.
With each launch, we learn more about how best to roll out these changes and what matters to members the most, in particular maintaining travel/watching on the go and the ability for people to better control access to their accounts as well as transfer profiles to separate accounts. We could have launched broadly in late Q1, but we found enough improvement opportunities in these areas to shift a broad launch to Q2 to implement those changes. As noted above, while this will shift some of the membership growth and revenue benefit from Q2 to Q3, we believe it will result in a better outcome for our members and our business. Longer term, paid sharing will ensure a bigger revenue base from which we can grow as we improve our service.
As a reminder, as we roll out paid sharing – and as some borrowers stop watching either because they don’t convert to extra members or full paying accounts – near term engagement, as measured by third parties like Nielsen, will likely shrink modestly. However, we believe the pattern will be similar to what we’ve seen in Latin America, with engagement growth resuming over time as we continue to improve our programming and borrowers sign-up for their own accounts.
Netflix originally hoped to roll out its account sharing and profile transfer options earlier this year. The company explained the process of transferring profiles in an October website post to encourage users to take steps to stop sharing their passwords. This hasn't panned out for Netflix yet, but the company is hopeful that the end result will be more users starting their own individual accounts.