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Netflix says paid sharing is working, but is it really?

  • Netflix reported revenue grew 7.8 percent to $8.5 billion in the last quarter.
  • The US and Canada market appears to be tapped out with zero growth being reported as regards memberships.
  • Average revenue per membership fell one percent due to a higher percentage of membership growth from lower ARM countries, limited price increases over the past 18 months, and some shift in plan mix.

Over the last year, Netflix has been waging a war against users who share their accounts with others. This has taken the form of paid sharing and in some regions, simply requiring users to start a new account.

While growth on the back of the introduction of paid sharing was good, that state depends largely on where one is focusing their attention.

Looking at the regional breakdown of subscribers in the latest Financial Results for Q3 2023[PDF], Netflix reports zero percent growth in membership revenue in the US and Canada region. This improves slightly in Europe, Middle East and Africa (2 percent), Latin America (3 percent), and Asia Pacific actually saw a year-on-year growth decline of 9 percent.

This tells only a part of the whole story though. Looking at when Netflix introduced paid sharing to the US market, the firm reported a zero percent growth, this was repeated this quarter pointing to the fact that perhaps, uptake of paid sharing isn’t as voracious as the streaming platform wants shareholders to think it is.

In addition, average revenue per membership fell one percent. Netflix attributes this to “a higher percentage of membership growth from lower ARM countries, limited price increases over the past 18 months, and some shift in plan mix”.

This may be problematic as Netflix reports that more than 70 percent of its users are now outside of the US. If the firm is struggling to grow average revenue per member, then “lower ARM countries” may be a weight around Netflix’s neck.

Despite these woes however, Netflix’s revenue grew 7.8 percent to $8.5 billion, and expects this to grow a further 10 percent to $8.6 billion in the next quarter. This, while rather reasonable in terms of growth, isn’t going to happen because of great new content (SAG-AFTRA is still on strike remember) but rather because Netflix intends to hike its prices in certain markets.

“Starting today, we’re adjusting prices in the US, UK and France. In the US, our ads ($6.99) and our Standard plans ($15.49) will stay the same, while Basic will now be $11.99 and Premium $22.99. For the UK and France, our pricing for Ads/Basic/Standard/Premium are £4.99/£7.99/£10.99/£17.99 and 5.99€/10.99€/ 13.49€/19.99€, respectively (like the US, our Ads and Standard plans in UK and France are unchanged). Our starting price is extremely competitive with other streamers and at $6.99 per month in the US, for example, it’s much less than the average price of a single movie ticket,” the streaming platform wrote to shareholders.

The streaming platform is also pushing advertising hard. Netflix reports that in the long-run it could generate $180 billion in ad Dollars. In order to do that though it’s going to have to build out that side of the platform. This could help drive membership growth given the fact that Netflix is eyeing fee increases in some countries. Given that this was highlighted as a reason for slower growth, it’s not beyond the realm of possibility that Netflix increases pricing in other regions in a bid to push users to the advertising tiers.

For now, things look stable at Netflix but with the ongoing strike action in Hollywood, the disdain for paid sharing, and the growing cost of streaming services, growth may be harder to achieve.


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