Why Is Everyone Talking About Netflix?
Netflix (NASDAQ: NFLX) has had an up-and-down year. After hitting record revenue in 2020 and 2021, the streamer lost 200,000 subscribers in its first quarter and close to another 1 million during its second quarter.
But with its third-quarter now in the books, the company is seemingly turning things around by adding 2.4 million new subscribers. And with a handful of growth strategies yet to play out, there is good reason why everyone is talking about Netflix right now.
Profile Transfers
Netflix has announced Profile Transfer, a new feature that lets viewers easily move their watch lists, viewing histories, and personalized recommendations from one membership account to another. As the streamer describes it, Profile Transfer recognizes that people can experience many life changes, including breakups or moving out of their parents' home, thereby providing reasons why they might need a fresh Netflix account all of their own.
On the face of things, Netflix is providing consumers a service that smooths their viewing experience as they disconnect themselves from another's account. But for those watching the company's stock, it's also a prelude to the next chapter in Netflix's history -- one in which more of its viewers will be asked to pay for the privilege of watching its content.
Getting tough on account sharing
Netflix's terms of service have long made clear that account holders are not supposed to pass along their login details to others. Nonetheless, this rule has been poorly enforced, and accounts are often shared among friends and families. According to one study published earlier this year, 33% of Netflix accounts in the U.S. are used across multiple households.
For Netflix, such ancillary viewers represent potential customers who have little reason to sign up for their own accounts. It's an issue that stakeholders have often pressed the company on, urging them to find a way to extract income from such users. After experiencing a decline in subscribers this year, Netflix has finally opted to take action.
Netflix has been testing pilot schemes across several Spanish-speaking countries, charging subscribers an additional fee when it detects accounts have been shared with people living at other addresses. Following its Q3 results, the streamer announced the crackdown will become a reality for more users in 2023. And while Netflix is yet to disclose how much extra subscribers will have to pay to share their logins, it's clear the free ride will soon be over for many.
An ad-supported tier to trigger growth
Netflix first announced plans for a lower-cost, ad-supported tier following its dismal Q1 results. At the time, Netflix founder and co-CEO Reed Hastings acknowledged he had long been against the idea of running ads on the platform but admitted he had changed his mind because giving subscribers choice was more important. And of course, by offering consumers more choice, the company hopes it will help to reignite user growth.
Choice (and growth) is something Walt Disney (NYSE: DIS) has also been thinking about recently. The company announced earlier this year that it was developing a Disney+ ad-based plan, sparking speculation among market watchers about which company would ultimately find the most success. By the time Disney confirmed the Dec. 8 launch date for its new $7.99 per-month Disney+ Basic (with ads) offering, Netflix had still not confirmed whether its own ad-supported plan would arrive this year or next.
Now, Netflix has revealed that its similarly named Basic with Ads plan will arrive Nov. 3 in the U.S., priced at $6.99 per month. By beating Walt Disney on both price and launch date, Netflix is showing that it's ready to take on its rival in the next phase of the streaming wars -- something the streamer's investors will only be too happy to see.
By introducing Profile Transfer, cracking down on account-sharing, and launching an ad-supported option, Netflix has potential to really add to its bolstered Q3 numbers. Of course, Netflix does not operate in a bubble, and the streamer faces no end of competition from Walt Disney and others. But for investors, Netflix is demonstrating it has learned from its weaknesses and is now showing real strength.
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Tom Wilton has had business dealings with Netflix but holds no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.
