Netflix’s recent efforts to curtail password-sharing appear to have paid off, as the streaming giant likely added approximately 6 million subscribers in the third quarter. As Netflix prepares to report its earnings, it is expected to lay the groundwork for potential price increases, positioning itself as a leader among streaming platforms.
As the sole profitable major streamer, Netflix has taken a different approach from its competitors like Walt Disney, refraining from raising ad-free prices this year. Instead, it focused on restricting password-sharing outside of households, a move designed to tap into the vast user base of over 100 million viewers who enjoy its service without subscribing.
Analysts at Bernstein noted that Netflix now resembles a utility in many markets, and one of the challenges that come with this classification is how a mature company can continue to find avenues for growth.
Recent reports suggest that Netflix may consider price hikes once the Hollywood actors’ strike concludes. The strike, which was called five months ago, led to significant disruptions in Hollywood. However, Netflix has weathered this disruption relatively well, thanks to its substantial international presence and a strong content lineup.
Although the ad-supported plan introduced last year had a slow start, analysts anticipate that Netflix will increase the prices for its ad-free options in the coming months. This strategy aims to encourage more subscribers to opt for the ad-supported tier, which generates additional revenue per user.
So far, most subscribers who joined Netflix after the password crackdown have chosen ad-free plans. The standard plan with ads is priced at $6.99 per month, while ad-free plans start at $15.49.
Ross Benes, an analyst at Insider Intelligence, predicts that by using these tactics, Netflix is likely to double its ad-supported viewership next year and expects Netflix to gradually increase the number of ads shown to users, putting it on par with its rivals.
In the third quarter, it is estimated that the ad-supported tier generated approximately $188.1 million in revenue and attracted 2.8 million new subscribers, according to Visible Alpha estimates.
Overall, Wall Street anticipates that Netflix will report its strongest quarterly subscriber additions this year, based on LSEG data. The streaming giant is expected to post a revenue increase of approximately 7.7%, reaching $8.54 billion in the third quarter. This marks the fastest growth rate in five quarters, attributed to the success of strong programming, including the latest seasons of “Sex Education” and “Virgin River.”