Netflix delays account sharing crackdown after ‘cancel reaction’

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Netflix has pushed back the planned rollout of its closely watched attempt to crack down on account sharing, saying the expected boost to memberships and revenues would also be delayed as it sought to improve the quality of the new service.

The streaming video company estimated revenues would hit US$8.24 billion in the second quarter, below the US$8.47b expected by Wall Street analysts.

Its shares initially fell more than 10 per cent in after-hours trading before rebounding and recovering all of those losses.

The new “paid sharing” service — which lets customers share their account with people outside their household for a fee — resulted in a “cancel reaction” after it was launched in some markets including New Zealand, Canada and Spain, Netflix said in a letter to shareholders. That hurt “near-term” growth in its membership numbers, it added.

Netflix said it was delaying the wider launch of paid sharing to the US and other markets from the first quarter to the second, which would shift “some of the membership growth and revenue benefit” from the second quarter to the third. This could also cause engagement with Netflix’s service to shrink “modestly” in the short term, it said, but it expected it to recover over time.

Despite the rollout delays, the company said it was confident it could hit its full-year targets, adding it was “pleased” with the recent launches of paid sharing.

Netflix added 1.7 million subscribers around the world in the first quarter, lifting the total by 4.9 per cent year-on-year to almost 233 million. Its revenues rose 3.7 per cent to US$8.16b but net income dropped from US$1.6b to US$1.3b.

The company also announced on Tuesday that it would wind down its DVD rental programme this September after 25 years, marking the end of a service that was the core of Netflix’s business model when it was founded.

In January, co-founder Reed Hastings stepped down as chief executive and was replaced by a pair of co-CEOs, Ted Sarandos and Greg Peters. Hastings is still at the company as its executive chairman.

In February the company cut subscription prices in more than 30 countries as it sought to increase its user base.

Netflix had surpassed analysts’ expectations in its fourth quarter of 2022 by adding 7.7 million subscribers, but it was its worst year for annual growth in more than a decade, which started poorly when the company revealed last April that it had lost subscribers.

Written by: Christopher Grimes and Jaren Kerr

© Financial Times