It’s going to be a while before Netflix raises its prices again, and subscribers have the streamer’s paid sharing rollout to thank.
“We’re now more than a year out from any price adjustments in our big revenue countries. We largely paused them during the paid sharing rollout,” Netflix’s CFO Spencer Neumann said during the company’s second quarter earnings call Wednesday. Neumann also called the sharing plan the company’s “primary revenue accelerator in the year.”
“Most of our revenue growth this year is from growth in volume from new paid memberships, and that’s largely driven by our new paid rollout,” Neumann said. While ads will eventually contribute more to Netflix’s revenue stream, the company expects that growth will take time, calling its ad system a “gradual revenue build.”
In May, the streamer officially launched paid sharing in over 100 countries that accounted for 80% of Netflix’s revenue. Part of its password crackdown plan, the paid sharing or “extra member” option allows customers to remain subscribed to a household they’re not geographically part of for a monthly fee. Since the launch of paid sharing, Netflix has seen higher revenue in each of these regions than it did pre-launch and sign-ups have exceeded cancellations. This also only marked the beginning of this plan. Starting Wednesday, the streamer expanded to include nearly every country that has access to Netflix, accounting for almost 90% of the streamer’s countries by revenue.
Netflix co-CEO Greg Peters emphasized that developing the paid sharing model was a “balance” between taking user concerns into consideration and “making sure that Netflix was able to get reasonably paid.”
“We’re going to continue to iterate and execute that model,” Peters said.
The executive also noted that the company doesn’t expect to see every password borrower switch to a paid account “overnight.” Users who use Netflix everyday are predicted to move to their own account soon whereas less frequent users may wait until an anticipated show or movie premieres to make the switch.
“I would think about it as we’re seeing effects right now, but we’ll also see those effects over the next many quarters,” Peters said.
The company also addressed its most recent subscription change. On Wednesday, Netflix quietly dropped its Basic plan in the U.S. and U.K. for new subscribers. The plan, which was the streamer’s lowest cost ad-free option, was already removed from Canada weeks ago. Peters explained that the company made this change while keeping two goals in mind: giving consumers access to Netflix across a wide range of price points and optimizing longterm revenue.
“When we dropped that Basic tier, folks that would have signed up for that tier essentially sort into two tiers. They either take the Ads plan, which is that really low attractive entry-level price, or they move into the Standard plan,” Peters said.
