Netflix has cracked down on password sharing. Result? Millions of new subscribers

(CNN) — Last year, Netflix made a particularly risky bet by forcing users who shared passwords to create their own accounts. This measure has borne fruit.

Netflix, the dominant player in the streaming market, added more than nine million subscribers in the first three months of the year, reaching a record 269.6 million.

“It added more subscribers than many analysts, including myself, expected,” said Ross Benes, senior analyst at eMarketer. “This indicates that password sharing has become even more common than previously thought as Netflix continues to convert free viewers into paying users.”

Although the number of new subscribers exceeded Wall Street estimates, the company reported a slowdown in growth in its impressive fourth-quarter report, when the number of subscribers stood at 13 million. Netflix announced Thursday that it plans to stop publishing quarterly subscriber data in 2025.

The company also reported revenue of $9.37 billion and earnings per share of $5.28 in the first quarter, beating Wall Street estimates, according to FactSet.

But stocks that have been Wall Street’s darlings this year fell in after-hours trading.

Analysts say much of the company’s past growth and success is due to its long-standing, well-established business model. In recent months, Netflix has taken steps to expand and even radically reinvent its business as it seeks to boost profits.

As streaming competitors like Disney+, Hulu, Max (owned by Warner Bros. Discovery, CNN’s parent company) and Peacock work to attract subscribers with original programming, Netflix has been betting big on live sports, video games and licensing deals lately with other content from providers. all while moving from an ad-free subscription service to a full-fledged ad-supported behemoth.

Reinventing Netflix

For Netflix, last year’s Oscars were a disappointment: although the streaming service beat its competitors in the nominations, it only won one award – for best short film. Going forward, the company appears to be moving away from what it was known for: spending money to develop big-budget films and TV shows that can win those awards.

The company’s first-quarter letter to shareholders outlined several goals to “maintain healthy long-term growth,” including: “Improving the variety and quality of our entertainment with more great TV shows and movies, and building a larger list of must-see games ” and shows, live programs.

In recent months, after “Suits” exploded in popularity on the platform, Netflix said it plans to license more content from other studios. New generations are rediscovering iconic ’90s and early ’90s shows like Seinfeld and Sex and the City when they debuted on Netflix.

“They’re getting a ton of views on both original and licensed content,” said Alicia Reese, an equity analyst who covers Netflix for Wedbush Securities. “It’s productive and cheaper for them.”

Netflix has also expanded into live streaming and sports programming this year, challenging the dominance of traditional television. In February, Netflix hosted its first Screen Actors Guild Awards show and announced a 10-year deal to stream WWE Raw worth more than $5 billion.

In the battle for audience attention, Netflix got creative and partnered with Rockstar Games’ “Grand Theft Auto”, a hugely popular action-adventure video game franchise, to further push into the video game entertainment space.

“We’re thrilled with the performance of GTA,” Netflix co-CEO Greg Peters said in January. “We have been the leader in mobile game downloads for several weeks, which shows that this is a big number not only for us, but for mobile games in general.”

Reese believes in Netflix’s new direction.

“Netflix has this formula for success right now,” he said. “They have a lot of different content that makes people want to use the services at different prices.”

TV with advertising, again

Reese said he believes Netflix has other growth opportunities, including a new ad-supported subscription tier.

The ad tier, which costs $6.99 per month in the US, significantly less than Netflix’s other subscription plans, has seen explosive growth since its introduction in late 2022. In January, Netflix’s advertising president, Amy Reinhardt, revealed that Netflix was ad-supported. option had over 23 million users.

While the company did not share an update on the number of users of its ad-supported service, Netflix said in a letter to shareholders on Thursday that its ad-supported subscribers grew 65% from the previous quarter.

Reese said Netflix’s future growth could depend on its success in the advertising space.

In January, Peters said the company was looking to snatch more advertising revenue from its traditional TV competitors.

“We know that advertising dollars follow engagement. We have the most engaged audiences, so we believe we are well positioned to capture some of the advertising investment that is moving from linear to streaming,” he said.

Netflix will stop sharing quarterly subscribers

On the company’s earnings call, Netflix co-CEO Greg Peters discussed the company’s decision to stop sharing quarterly paid subscriber numbers starting in 2025.

“We have evolved and will continue to evolve by evolving our revenue model and adding things like advertising and additional features for users. Things that are not directly related to the number of participants,” he said. “So each additional member has a different impact on the business.”

eMarketer’s Benes said Netflix’s decision to stop sharing subscriber numbers allows the company to “get out while it’s ahead and become the subscriber heavyweight champion of the world.”

“Netflix is ​​emphasizing what benefits them,” Benes said. “Password sharing growth will eventually slow, and it will be very difficult to continue adding as many subscribers as they have added over the last few quarters.”