Netflix Considers Price Increase Following Successful Crackdown on Password Sharing
Netflix's move to crack down on password-sharing has likely contributed to an increase of approximately 6 million subscribers in the third quarter. With the earnings report set for Wednesday, the streaming giant is expected to lay the groundwork for potential price hikes.
Unlike many of its streaming counterparts, Netflix, the only profitable major player in the field, has refrained from raising its ad-free subscription prices this year. Instead, the company focused on limiting password-sharing beyond household boundaries, thereby targeting the vast pool of over 100 million viewers who utilize its services without subscribing. Analysts at Bernstein have noted that Netflix is increasingly resembling a utility in numerous markets. However, being labeled as a utility brings challenges for a mature company, including the pursuit of continued growth.
There have been reports suggesting that Netflix might contemplate price increases after the resolution of the recent Hollywood actors' strike, which was initiated in October. Last week, the Writers Guild of America (WGA) approved a new contract with major studios, signaling the end of the strike that had plunged Hollywood into turmoil. Analysts anticipate that Netflix will elevate the prices of its ad-free subscription options in the near future, encouraging more subscribers to opt for the ad-supported tier, which generates higher revenue per user through advertisements.
Since the password-sharing crackdown, most new Netflix subscribers have favored the ad-free plans. The standard plan with ads is priced at $6.99 per month, while ad-free plans start at $15.49. Analyst Ross Benes of Insider Intelligence predicts that by employing these strategies, Netflix could potentially double its ad-supported viewership next year. Additionally, he anticipates that Netflix will gradually increase the frequency of ads shown to users to catch up with its competitors.
The ad-supported tier is expected to generate approximately $188.1 million in revenue for the third quarter, with an estimated addition of 2.8 million subscribers, according to Visible Alpha estimates. In general, Wall Street anticipates that Netflix will report its most robust quarterly subscriber growth of the year, as per LSEG data.
The third-quarter revenue is projected to have risen by 7.7% to $8.54 billion, marking the fastest growth in five quarters.