Netflix is all set to release its first-quarter earnings report, and with an expected net addition of 2 million subscribers in the first quarter, market watchers will be keen to analyze whether cracking down on password sharing and the launch of its ad-supported are driving subscription numbers and user retention.
Netflix introduced its ad-supported tier in November 2022, initially targeting 12 countries. It managed to add one million subscribers in the US within the first two months of this year.
In November, Netflix launched a streaming plan with advertising for $6.99 per month in 12 countries, after resisting commercials for years. This move came as the company saw the role of advertising grow in importance for premium streaming services as a part of their profitable growth strategies. According to social media analytics firm Antenna, ad-supported plans accounted for nearly one in three new sign-ups last year, compared to one in five in 2020.
The ad-supported tier is a significant development for the company. Experts believe that the new tier’s success could potentially make it as big as Hulu, the market leader partly owned by Walt Disney, over the next few years. Disney’s Hulu and Disney+, as well as HBO Max, have already adopted ad-supported options, paving the way for Netflix to follow suit.
Netflix‘s ad-supported tier could help the company offset weaknesses in average revenue per user (ARPU) growth while maintaining its competitive edge in the increasingly crowded streaming market. It remains to be seen how well the ad-supported model will perform in the long run, but early indications show a solid product experience and improving advertising take rates.
The company has recently launched a crackdown on password sharing, a practice that involves an estimated 100 million non-paying households using the service. Netflix considers password sharing a hindrance to its ability to invest in and improve its offerings. By using location services data, the company aims to charge users an extra monthly fee for accessing Netflix from different locations, thus potentially generating additional revenue.
Netflix initiated the first phase of its ‘paid sharing’ strategy in countries such as Canada, New Zealand, Spain, and Portugal. The main focus will shift to the US market before the end of the first half of the year. This new approach could boost net subscriber additions, with expectations of a 3.43 million increase in the three months ending in June.
Netflix’s first-quarter earnings report will serve as a crucial barometer for the effectiveness of its ad-supported tier and password-sharing crackdown strategies.
