Netflix Plans Price Increase as Password-Sharing Crackdown Boosts Subscriber Growth Hollywood strikes will lead to lower content spending, more free cash flow this year, company says
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 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.
Netflix’s password-sharing crackdown and lower-cost ad-supported plan are part of an effort to attract new customers and boost the average revenue per user it generates. The company’s ad business has so far grown slowly, with some advertisers clamoring for the company to offer them more scale before they commit to spending larger sums. Netflix’s ad-supported tier accounted for 5.75% of U.S. subscribers as of September 2023, according to subscription analytics service Antenna, up from 3.3% at the end of June.
“It takes time to build a new business from scratch,” Netflix wrote in a letter to shareholders. The company said it is optimistic about the long-term opportunity in ads.
In the U.S., Netflix’s lowest-cost plan includes ads and costs $6.99 a month for one user with limited features, and the company isn’t currently changing that price. Netflix’s standard plan costs $15.49. That plan and its priciest premium subscription offer higher-quality resolution and the ability to watch on more devices at the same time. Netflix is making a number of improvements to its ad-based plan globally to encourage more users to sign up, such as allowing for two streams at a time and higher-quality video, the company said. Next month, the company plans to let users on ad-supported plans download content, a feature that wasn’t previously available.
Next year, users bingeing a show will be able to watch a commercial-free episode sponsored by an advertiser, Netflix said. In its letter to shareholders, Netflix said it is planning “substantial changes” to its executive compensation plan after shareholders rejected its executive-pay package in a nonbinding June vote. “We recognize we don’t have wide support for our executive compensation model of the last 20 years,” the company wrote.