Netflix hints at password sharing crackdown as subscribers fall

Netflix's future, which seemed so rosy only a few months ago, now looks unsteady due to high cost of living.

In Summary

•Netflix's future, which seemed so rosy only a few months ago, now looks unsteady due to high cost of living.

•People are cutting back on it as they want to save money and feel the content available is overwhelming.

A photo of the logo of the Netflix streaming service provider in Paris, Sep 15, 2014.
A photo of the logo of the Netflix streaming service provider in Paris, Sep 15, 2014.

Netflix has hinted it will crack down on households sharing passwords as it seeks to sign up new members following a sharp fall in subscribers.

Some 200,000 people left the streaming service in the first three months of the year as it faced intense competition from rivals.

It was also hit after it raised prices in some countries and left Russia.

Netflix warned shareholders another two million subscribers were likely to leave in the three months to July.

"Our revenue growth has slowed considerably," the firm told shareholders on Tuesday after publishing its first quarter results.

"Our relatively high household penetration - when including the large number of households sharing accounts - combined with competition, is creating revenue growth headwinds."

The streaming giant estimates more than 100 million households are breaking its rules by sharing passwords.

Boss Reed Hastings has previously described the practice as "something you have to learn to live with", adding that much of its is "legitimate" between family members. The firm has also said it was likely to have helped fuel its growth by getting more people using Netflix.

But on Tuesday Mr Hastings said account sharing was making it hard to attract new subscribers in some countries.

"When we were growing fast, it wasn't a high priority to work on [account sharing]. And now we're working super hard on it," Mr Hastings told shareholders.

The firm said that measures to stop password sharing that it has been testing in Latin America could be extended to other countries, with accounts that break the rules charged extra.

Lucas Shaw, who writes the Screentime newsletter for Bloomberg news, told the BBC that password sharing had been an issue for the firm "for a long time" but was by no means its biggest challenge.

"It feels like the company is trying to identify an area of potential growth," he told the Today programme.

"They've tried to curb password sharing in the past and had a very hard time."

Shares in the streaming giant plunged more than 25% in after-hours trading following the news, wiping more than $30bn (£23bn) off the company's market valuation.

Subscriber exodus

The last time the company lost members in a quarter was October 2011 and it warned that growing numbers would cut ties this year.

The firm remains the world's leading streaming service, with more than 220 million subscribers, but it said a surge in sign-ups during the pandemic had "obscured the picture" around its growth.

Analysts say people are cutting back on streaming as they look to save money and feel overwhelmed by the volume of content available.

Netflix also faces intense competition as firms such as Amazon, Apple and Disney pour money into their online streaming services.

Paolo Pescatore, an analyst at PP Foresight, said the subscriber loss was a "reality check" for Netflix, as it tries to balance retaining subscribers with raising its revenue.

"While Netflix and other services were key in lockdown, users are now thinking twice about their purchasing behaviour based upon changing habits," he said.

North America especially is "now awash with too many services chasing too few dollars", he added.

Russia hit

Pulling out of Russia, a step Netflix took following the war in Ukraine, cost it 700,000 subscribers, Netflix said.

Another 600,000 people stopped its service in the US and Canada after its put up prices, it added.

Netflix said that move was playing out "in line with expectations" and would yield more money for the firm, despite the cancellations.

Its revenue in the first three months of the year was $7.8bn (£6bn), up 9.8% compared with the same period last year.

That marked a slowdown from earlier quarters, while profits fell more than 6% to roughly $1.6bn.

As it looks to grow, the firm said it was focused on international markets and was also looking at bringing advertising into its services.

Mr Hastings said it was "pretty clear" that ad-supported services were working for Disney and HBO.

"Those who have followed Netflix know that I've been against the complexity of advertising, and a big fan of the simplicity of subscription," he said. "But, as much as I'm a fan of that, I'm a bigger fan of consumer choice."

Analysts say the rising cost of streaming services was starting to wear on households.

Netflix, like many tech companies, had a bumper pandemic.

People flocked to the streaming company - it seemed like the company could do no wrong.

But several factors have now combined to give Netflix the most difficult operating environment it has faced for over a decade.

Firstly it can't seem to find a way to stop people from sharing passwords which it has complained about for years.

An increase in competition from rivals like Disney+ and Apple TV has also made the streaming market extremely competitive - at a time when Netflix has increased its subscription price.

The company is blaming its decision to pull out of Russia for its negative global growth - and this is technically true.

But the company is forecasting further losses in subscribers in the next quarter too, so this isn't just about Russia.

And with the cost of living crisis biting for many, Netflix's future, which seemed so rosy only a few months ago, now looks unsteady.