Paid-sharing pays off as Netflix ramps up 5.9m net adds

Netflix has massively exceeded analyst expectations by signing up 5.9 million net new subscribers in the second quarter in an evident vindication of its clampdown on password sharing.

The paid net additions take the streamer’s global base to 238 million. Netflix announced that it was now rolling out ‘paid sharing’ to almost all its remaining markets after launching the initiative in over 100 countries in May.

Netflix made gains in all regions, with 1.17 million adds in North America, 2.43 million in EMEA, 1.22 million in LATAM and 1.07 million in APAC.

The company posted revenues of US$8.2 billion for the quarter, up 2.7% (or 6% on a currency-neutral basis). with an operating profit of US$1.8 billion. Average revenue per member declined by 3%, or 1% on a currency-neutral basis, with Netflix limiting price increases in the run-up to the launch of the paid sharing initiative.

In its letter to investors the company said it now had “increased confidence in our financial outlook: with a forecast of 7% revenue growth in Q3 to US$8.58 billion.

On Netflix’s analyst Q&A with BofA Securities’ Jessica Cohen, co-CEO Gregory Peters said that the company saw that its password sharing crackdown was “working” but cautioned that the benefits would be spread over time.

Chief financial officer Spencer Neumann nevertheless said that “most of our revenue growth this year is from growth in volume through new paid memberships, and that’s largely driven by our paid sharing rollout”, with limited impact from the rollout of advertising and limitations on price changes as the paid sharing model is deployed.

On the ending of Netflix’s basic-without-ads plan in the US, UK and Canada, Peters said that this was in line with its ongoing optimisation of its pricing and plan structure  and that people formerly on the basic tier “essentially sort into two tiers” – that with advertising and the standard plan.

Actors’ strike

Also speaking on the call, co-CEO Ted Sarandos said that consuemrs were now a “long away from this notion of the linear grid dictating what they can watch and where they can watch it and how they can watch it”  and that Netflix was continuing to “grow our share” of an ever-expanding streaming space.

Sarandos said little about the likely impact of the SAG-AFTRA actors strike on the company’s future performance. Reflecting that he was “raised in a union household” and was aware from personal experience of the “enormous toll on your family financially and emotionally” of being on strike, he said the actors’ strike had raised “an handful of complicated issues” and that Netflix was “super committed to getting to an agreement as soon as possible – one that’s equitable and one that enables the industry and everybody in it to move forward into the future”.