Reed Hastings, co-CEO of Netflix, will participate in the Milken Institute Global Conference on October 18, 2021 in Beverly Hills, California.
Patrick T. Fallon | AFP| Getty Images
Netflix On Tuesday it posted mixed financial results and said it was scaling back its widespread rollout of a password-sharing crackdown.
Initially, Netflix wanted to roll out late in the first season, but on Tuesday it said it would do so in the second season.
“While this means that some of the expected membership growth and revenue gains will fall in Q3 rather than Q2, we believe this will result in a better return from both our members and our business, ” the company said in its earnings release.
The company said that it saw the growth of its subscribers affecting the international markets where it has already rolled out such campaigns.
Here are the results Netflix reported Tuesday compared to estimates from analysts surveyed by Refinitiv:
- Earnings per share: $2.88 was expected versus $2.86
- Income: $8.16 billion vs $8.18 billion expected
For the quarter ended March 31, Netflix reported earnings of $1.31 billion, or $2.88 per share, compared to $1.6 billion, or $3.53 per share, a year earlier. Revenue grew to $8.16 billion from $7.87 billion in the previous year.
Netflix shares initially fell more than 10% but recovered mostly in after-hours trading.
Netflix’s crackdown on password sharing has been the focus of investors. At the end of last year, the company said it would start implementing measures to force people who have borrowed from other accounts to create their own.
The company has said that more than 100 million households share accounts, or about 43% of its global user base. That has affected its ability to invest in new content, Netflix said. Both the ad-supported option and a crackdown on password sharing are intended to increase profits.
“The release in Q2 will be broad, including the US and most of our countries when we think about it from a revenue perspective,” co-CEO Greg Peters said on a call earnings on Tuesday. Peters compared the paid-sharing transition to a price hike — subscribers first balk and cancel, then slowly come back and sign up for their own accounts.
In February, Netflix outlined password sharing guidelines in four countries: New Zealand, Canada, Portugal and Spain. The company said it would ask users in those countries to set a “primary location” for their accounts, and allow users to set up up to two “sub-accounts” for those who don’t live in the home. for additional fees.
Netflix said Tuesday that it has been pleased with its effort to mitigate password sharing. In Latin America, the company said it saw cancellations after the announcement, which affected near-term growth. However, Netflix said, those password lenders would activate their own accounts later and add existing members as “additional member” accounts. As a result, the company said, they are seeing more revenue.
Canada, which will likely serve as a template for the US, has seen its subscriber base grow thanks to the launch of paid sharing, and revenue growth has accelerated and is “growing faster than in the US”.
The company said that as it rolls out its paid sharing campaigns, it expects near-term engagement — which is measured by Nielsen for its ad-supported level — to be “the decline to a low level. ” However, the company believes that they will bounce back as seen in international sectors.
Expect a bump in income
Netflix said it believes paid sharing will ensure more revenue in the future as it tries to improve its service. On Tuesday, Netflix said it expects to spend about $17 billion in 2024 on content.
Co-CEO Ted Sarandos said Tuesday that the company hopes to avoid a writers’ strike and talks are continuing with the Writers Guild of America.
“We respect the writers and the WGA and we couldn’t be here without them. We don’t want a strike,” Sarandos said Tuesday. However, Sarandos noted that if there were to be a strike, Netflix has a strong lineup of upcoming TV shows and movies.
Netflix noted on Tuesday that “competition remains intense as we compete with so much entertainment.”
On Tuesday, Netflix said goodbye to what it started – its DVD mail business, in which it would send the discs in red envelopes to customers. Company CEO Ted Sarandos said in a blog post that he would eventually end the DVD business, which “continues to decline.”
A year ago, Netflix reported its first subscription loss in a decade, sending its shares spiraling down, as well as those of its media peers. The results forced Netflix and its streaming rivals to focus on profits over subscription numbers.
As Netflix looked to increase its profits and subscribers, it turned its focus to an advertising-supported plan, as well as a password-sharing crack.
Last November, Netflix revealed its cheapest level with ads, which costs $6.99 per month. The ad-supported series came shortly after losing subscribers as streaming competition intensified.
Sarandos recently said that the company will likely offer multiple ad-supported tiers in the future.
Netflix’s sponsored plan now has an average of 95% of the same content as its commercial-free plans thanks to recent licensing deals, the company said Tuesday.
“We are pleased with the performance and trajectory of the ad economy of each of our members,” Netflix said Tuesday.
Peters said Tuesday that Netflix was not prepared to announce or predict expectations regarding its ad-supported plan.
In some markets, Netflix has seen users move between tiers after the introduction of paid sharing, Peters said, although it was very “country specific”.
Executives also addressed the glitch that left millions unable to watch the live broadcast of “Love is Blind” on Sunday.
Both Peters and Sarandos said the company was “very sorry to have disappointed so many people.”
Peters said that from a technical standpoint, Netflix has the infrastructure to cancel a live broadcast, as it did with Chris Rock’s comedy special in March. But a bug was “introduced” when we were trying to develop the Chris Rock special. “We hate it when these things happen but we learn from it,” Peters said.
