In a strategic move that has paid off, Netflix has stopped offering its basic membership plan in the US and has begun to crack down on password sharing. These changes have led to a surge in new subscribers, with the company adding 5.9 million new paid subscribers in the second quarter, beating Wall Street expectations.
Netflix's decision to axe its basic membership plan was part of a broader strategy to push new or returning subscribers towards its ad-supported plan or its standard ad-free plan. The company has been promoting its $6.99 ad-supported plan and its $15.49 standard ad-free plan, eliminating the $10 basic plan. This move suggests that Netflix is aiming to drive more new subscribers to the ad plan, which executives have said delivers more revenue per subscriber than its standard plan.
The company's Q2 earnings report is the first since it began its password-sharing crackdown in the US. The strategy, which Netflix calls "paid sharing," encourages password sharers to pay to add another subscriber or to buy their own subscription. The strategy appears to be paying clear dividends, contributing to the increase in new subscribers.
Netflix reported revenue of $8.2 billion and net income of $1.5 billion for the second quarter, with a total of 238.4 million global paid memberships. The company had previously told investors that it expected $8.2 billion in revenue in Q1, and operating income of $1.6 billion. It hit the revenue number but beat on income, hitting $1.8 billion in operating in Q2.
The company's revenue growth and profit margins have become the envy of the industry, with legacy competitors like Disney, Paramount, NBCUniversal, and Warner Bros. Discovery still bleeding cash as they try to make their own streaming services profitable. All of them say they are targeting 2024 to make their offerings turn a profit.
Netflix's strategic shifts and the resulting success underscore the company's ability to adapt and innovate in a rapidly changing media landscape. As the benchmark company in subscription streaming video, Netflix continues to set the pace in the industry.
