Netflix Sees Paid Sharing as Way to Build Relationships With New Subscribers

With a nod to new consumer sentiments about subscriptions, Netflix is focusing more on adding value for current subscribers while at the same time better monetizing existing members with a broad rollout of paid account sharing and ad-supported tiers.

Netflix said it added 1.8 million new subscribers in Q1, versus the subscriber loss it experienced in the comparable period in 2022 when it shed 200,000 subscribers.

During its first-quarter 2023 earnings presentation on Tuesday (April 18), Netflix co-CEOs Ted Sarandos and Greg Peters reviewed various pricing models and revenue streams that the streaming leader has been tinkering with, notably the account-sharing feature tested in Latin America, Canada, New Zealand, Portugal and Spain, and now being rolled out broadly in Q2.

Taking a bit of a victory lap, Sarandos said, “Netflix is the leading streaming service in terms of engagement, revenue and profits, and streaming is the future of entertainment at home. Just yesterday, Nielsen released data that in Q1 to 2023, Netflix was the most watched of any broadcaster or streamer in the U.S. by a pretty nice margin, and we have plenty of room to grow. Even with that tremendous amount of watching, we’re about 10% of total TV time in our most established markets, like the U.S. and the U.K.”

By way of comparison, CFO Spencer Neumann noted that there are over 1 billion broadband households and roughly 450 million to 500 million connected TV households, while Netflix has roughly 230 million paying members as of now, suggesting a huge TAM for the service.

Paid Account Sharing Going Wide in Q2

On paid account sharing — aka “password sharing” — now set for U.S. rollout in Q2, Peters said, “We learned from this last set of launches about some improvements we can do, especially in areas that matter a lot to our members. Things like having seamless access to Netflix as they’ve always been using it on the go or while traveling, as well as making sure they’ve got good tools for them to manage access to their accounts and their devices.”

Pricing for account sharing is being determined market by market, depending on local economics, with “affluent” territories likely to see higher prices than emerging markets. Asked how many account “borrowers” could end up as subscribers, Peters said, “Some folks are watching as much of our shows as a normal paying account, and those folks have a very strong likelihood to convert. If you’re watching much less, it’s much less likely that you’ll ultimately convert, but even in that case, I’d say this represents a really important structural shift where we’ll develop that one-to-one relationship without pricing distortion, without membership distortion, with a whole new range of members.”

Strategic Importance of Ad-Supported Tiers

Netflix’s value as an ad platform also came up relative to its audience data and scale. Peters said, “I think we’re getting into the walk phase” adding, “We’re getting to a certain size of scale that shifts how advertisers think about us,” including measurement, verification, targeting and programmatic buying capabilities. “We’re basically getting into that middle phase of growth, and we’ve got a lot of work to do before we get to the run phase.”

He added that Netflix is “improving our go-to-market and sales capabilities in partnership with Microsoft” country by country, having added a private programmatic marketplace “that gives advertisers more ways to buy as we grow inventory” while also looking at ad serving as part of the subscriber experience by adding more features to ad-supported tiers.

Asked about partnerships like its recent apparel pact with Lacoste, Sarandos said Netflix is primarily focusing on live events and partner tie-ins but made no comment on embedded shopping capabilities that would allow viewers to purchase show-inspired merchandise on-screen and in-stream.

On its plans for theatrical releases, Sarandos said, “Remember, there’s a lot of ways to create and collect demand for a film. Driving folks to a theater is just not our business. We create that demand and we collect that demand on our subscription service with our members, and I think having big new desirable content, including feature films in the first window, drives value for our members and drives value to the business. So, no major [theatrical] changes are in play.”

On a final note, Netflix announced it will discontinue DVD.com later this year as demand for DVDs has all but vanished. Netflix will make its last DVD shipment on Sept. 29, 2023.