Netflix Inc (NASDAQ:NFLX) said it is “encouraged” by initial trials for paid account sharing in Latin America as it looks to get some more money from what it estimates are over 100mln households that do not pay directly for its video streaming service.
Alongside its second-quarter earnings, which showed subscriber losses were not as bad as feared, the company confirmed it has launched different approaches in Chile, Costa Rica and Peru to test the market.
As it announced on Monday, the 'Add a Home' feature allows subscribers to pay an extra fee if they wish to share their Netflix password.
“Our goal is to find an easy-to-use paid sharing offering that we believe works for our members and our business that we can roll out in 2023,” Netflix said.
“We’re encouraged by our early learnings and ability to convert consumers to paid sharing in Latin America.”
Next year is also when the company plans to launch a new subscription offering supported by advertising, in partnership with Microsoft.
The launch of the ad partnership is scheduled for “around the early part of 2023… in a handful of markets where advertising spend is significant”.
As with account sharing, management said the intention is to roll out the initial product in select markets then “listen and learn, and iterate quickly to improve the offering”.
Netflix said it thinks its high audience engagement and content quality will attract premium prices from brand advertisers.
An update was also provided on its mobile games strategy, with three games studios acquired and new games having been released ever week since last November to reach a current total of 24, with “millions” of customers said to have tried at least one.
“The games are all intended to be accessible to broad audiences, and span several genres and categories, including racing with Asphalt Xtreme, the digital version of the irreverent card game Exploding Kittens, zombies in Into the Dead 2 and the knitting for cats in Knittens,” Netflix said.
For the past quarter, the company revealed a loss of 970,000 subscribers, which was much better than the 2mln expected, while earnings per share of US$3.20 was better than forecast.
In the third quarter, the company forecast subscriber numbers will bounce back, with paid net additions of at least 1mln, compared to the 4.4mln added in the same quarter a year ago.
Analyst reaction
Analyst Sophie Lund-Yates at Hargreaves Lansdown said the results “had been anticipated much like a tornado” due to expected subscriber losses, and while not as bad as feared, almost 1m losses means “things are hardly perfect”.
She said the ad-tiered system and a crack-down on account sharing are “likely to be successful in padding out the top-line” but aren’t going to come through for a while, “so it’s hard to know if these changes are going to generate an abnormal level of customer churn”.
Lund-Yates added: “In fact, it’s hard to overstate how tough things are,” she said. “Shareholders will still feel as though Netflix’s foundations are showing some fundamental cracks. Ones that are going to take a lot of time and heavy lifting to fill.
“The largest issue is one of a weaker content slate in the recent past. In today’s hyper-competitive landscape, having average content on offer simply won’t cut it.
“Playing catch up here becomes more difficult when you consider the breadth of M&A happening in the sector, the likes of Amazon snapping up MGM gives it access to pre-made, and crucially, rewatchable content.”
Victoria Scholar, head of investment at Interactive Investor noted that Netflix also announced plans to acquire Animal Logic, the makers of Happy Feet and the Lego Movie, as part of its content focus.
“Netflix is contending with a cocktail of pressures; its key North American market is becoming saturated, rising inflation is causing households to cut back on non-essential spending, there is tough competition from the likes of Disney+ and Amazon Prime and there are signs of a slowing global economy, which is likely to weigh on demand.”
She said Netflix is being proactive but like almost all stay-at-home stocks, it has fallen massively out of favour as the pandemic has moved on.
“Plus with the onslaught of competition, Netflix is inevitably losing its crown,” said Scholar. “The streaming giant somewhat naively raised its prices this year, expecting that subscribers would remain loyal.
“However with the cost-of-living crisis, Netflix is clearly much more price sensitive that it thought, suggesting that it needs to be more cautious around pricing going forward given that it is deeply dependent on the consumer as a business.”
The shares rose almost 8% to $217.46 in after-market trading, having shed about two thirds of their value so far this year.