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Netflix’s crackdown on password sharing appears to be paying off as the streaming service added 9 million subscribers in the third quarter — above forecasts of about 6 million — news that drove a sharp rise in its stock price.
The group’s shares rose as much as 18 percent early Thursday, a day after the company announced plans to raise prices for basic and premium subscribers in the U.S., U.K. and France, effective immediately.
Subscribers to the basic service in the US will see their monthly bill rise by $2 to $11.99, while premium subscriptions will rise by $3 to $22.99. Basic subscribers in the UK will pay an extra £1 or £7.99, with premium memberships rising from £2 to £17.99.
As its subscription growth slowed last year, Netflix announced plans to crack down on widespread password sharing and introduce ad-supported streaming options. The company said Wednesday that efforts to curb password sharing have boosted its subscriber and revenue growth over the past two quarters, adding that the “cancellation reaction” has been less than expected.
The increase in subscribers was the strongest quarterly rise since the second quarter of 2020, when Covid-19 lockdowns led to an improvement in signups.
“The era of ‘streaming’ is upon us, and consumers should expect to be hit by price hikes [and] Enticed by password sharing limitations and ad-supported options,” KPMG’s head of media Scott Purdy said Wednesday. “Today’s results show that these levers work, at least in the short term.”
But Netflix said its advertising effort is off to a slow start, repeating an earlier forecast that ad revenue would not be “economic” in 2023. Executive Jeremy Gorman, who spent the last year building the advertising business, left the company earlier this month. Former studio operations chief Amy Reinhardt was replaced.
Netflix’s third-quarter earnings of $3.75 a share beat Wall Street estimates of $3.52. It ended the quarter with 247 million subscribers, up 11 percent from a year earlier.
The company said it got a boost from older shows it licensed from rival studios, many of which stopped selling projects to Netflix after launching their own streaming services. But Warner Bros. Discovery’s HBO and NBCUniversal recently struck new licensing deals with Netflix.
Legal drama ClothesIt ended its original run in 2019, and after NBCUniversal licensed the show to Netflix this summer, it racked up 1bn viewing hours on the service worldwide, breaking viewing records.
“We may have increased opportunities to license more hit titles to complement our original programming,” Netflix said.
Chief executive Ted Sarandos spoke about the company’s upcoming lineup, which includes the final season crown and finite series All the light we cannot seeDirected by Shawn Levy.
Netflix acknowledged the effect of the Hollywood strikes, saying the past six months had been “challenging for our industry.” Talks between the actors’ union and a group representing studios and streamers broke down last week.
Sarandos said Wednesday that the actors’ union’s “new demand” for a share of streaming subscriber revenue was a “judgment” and unacceptable. “We are determined to end this strike,” he said. “We need to make a deal that respects all parties as best we can.”
The strikes led to a $1bn cut in investment in new content, Netflix said. “As a result, we expect to spend approximately $13 billion in 2023 cash content,” the company said. Netflix is expected to spend about $17 billion on content in 2024 if the actors’ strike is resolved “in the near future.”