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Netflix to Raise Prices as Password Crackdown Boosts Subscriber Growth

The streaming giant added 8.8 million subscribers in the third quarter and said it would immediately raise U.S. basic-plan prices to $11.99.
Netflix says that this year it will have more returning seasons than any other streamers, including hits such as ‘The Crown.’ PHOTO: DANIEL ESCALE/NETFLIX

Netflix says that this year it will have more returning seasons than any other streamers, including hits such as ‘The Crown.’ PHOTO: DANIEL ESCALE/NETFLIX

Netflix said its effort to limit password sharing led to a 10.8% rise in subscriptions in the third quarter, a better-than-expected result that comes as the company plans to increase some prices in the U.S. and other markets.

Shares rose more than 12% in after-hours trading. The streaming giant added 8.8 million subscribers in the third quarter with customer growth in every region, its largest quarterly customer gain since the second quarter of 2020.

The company plans to immediately raise prices for its basic plan in the U.S., which is no longer available to new customers, to $11.99 from $9.99 and up the cost of its premium plan to $22.99 from $19.99. It is also increasing some prices in the U.K. and France, though the cost of its ad-supported and standard ad-free plans are unchanged.

The price increases are a sign of streamers’ efforts to improve profitability and wean consumers off the low monthly subscription fees that drew users away from pricey cable bundles in the early days of streaming.

Netflix NFLX -2.68%decrease; red down pointing triangle said in its third-quarter earnings report that its average revenue per member decreased 1% year-over-year as a result of limited price increases over the past 18 months, a higher percentage of its growth coming from countries where it charges less for plans, and changes to its mix of its subscriptions. It expects average revenue per member to improve in 2024 given the price increases and the expected growth in ad revenue.

Netflix has fared better than many of its rivals this year, with companies such as Disney and Warner Bros. Discovery grappling with ailing legacy cable businesses and costly transitions to streaming on top of strikes that disrupted their production schedules.

The company ended the quarter with 247.15 million paid subscribers, up 10.8% from a year earlier.

Co-CEO Greg Peters said Netflix expects further customer additions from its new password-sharing limits in the next several quarters. There are still groups of borrowers the company hasn’t yet targeted, he said.

The resolved Hollywood writers’ strike and ongoing actors’ strike will result in lower content spending this year, Netflix said. It plans to invest about $13 billion, rather than the roughly $17 billion it expected to spend earlier this year. The company said its free cash flow for the year is likely to increase to $6.5 billion, up from a prior forecast of $5 billion.

“We want nothing more than to resolve this and get everyone back to work,” said co-CEO Ted Sarandos.

He said a demand from the Screen Actors Guild-American Federation of Television and Radio Artists for a bonus pool tied to subscriber fees broke the momentum of the negotiations. SAG has said its members contribute to streamers’ success and should be able to share in it.

Netflix reported revenue of $8.54 billion, roughly in line with its projections of $8.52 billion and up 8% from $7.9 billion in the third quarter last year. 

Net profit rose 20% to $1.68 billion in the third quarter, topping its forecast. The company’s operating margin during the period was 22.4%, slightly higher than its forecast.

Netflix said it would have more returning seasons than any other streamers, including hits such as “The Crown,” “Virgin River,” “Top Boy” and “Heartstopper.” It also announced a multiyear deal with Skydance Animation to make movies for Netflix starting in 2024.

Unlike its rivals, Netflix hasn’t raised prices over the past year. It internally discussed raising prices after the actors’ strike ends, The Wall Street Journal reported. Last week, talks between SAG and the studios broke down suddenly, and it is unclear when that strike might end.

The cost of major ad-free streaming services has gone up by about 25%, as entertainment companies look to bring their streaming platforms to profitability and lead price-conscious customers to switch to their cheaper and more lucrative ad-supported plans.

Warner Bros. Discovery raised the monthly price of the ad-free version of its Discovery+ streaming service this month to $8.99 from $6.99, while the cost of its ad-supported platform remains unchanged at $4.99 a month.

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Author: Editors Desk

Source: WSJ:

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