Netflix’s War On Password Sharing Pays Off, Price Increase Next?

Netflix’s crackdown on password sharing possibly attracted around 6 Mn new subscribers in the third quarter, setting the stage for a potential price hike as the company prepares to release its earnings report this Wednesday.

“Netflix now closely resembles a utility in many markets,” Bernstein analysts said, as per a Reuters report. “The challenge of being labelled a utility is how a maturing company continues finding growth,” the analysts added.

Following a sluggish beginning for the ad-supported plan, introduced last year, analysts predict that Netflix will likely increase the prices of its ad-free subscription options in the coming months. The move will be aimed at encouraging more subscribers to switch to the tier featuring commercials, which generate higher revenue per user.

Currently, the majority of new subscribers joining Netflix in response to the crackdown on password sharing have chosen the ad-free plans. The standard plan with ads is priced at $6.99 per month in the US, while the ad-free plans start at $15.49.

By employing these strategies, Netflix is poised to potentially double its ad-supported viewership in the coming year, Ross Benes, an analyst at Insider Intelligence told Reuters. He anticipates that Netflix will progressively increase the frequency of ads shown to users, putting it on par with its competitors in the industry.

Will The Ad Plan Be Introduced In India?

The OTT platform, which historically relied on a purely subscription-based model, introduced the ad-supported plans in 12 countries last year. However, India was not among these markets.

With the crackdown on password sharing expected to have given positive results for the streaming giant and the success of the new plan, the obvious question is if Netflix would also launch the plan in India.

The future of OTT platforms appears to be increasingly oriented towards ad-supported models, especially in price-sensitive regions like Southeast Asia and India. Elara Capital estimates that almost 63 percent of India’s $1.7 Bn OTT market is accounted for by advertising video-on-demand (AVOD) revenues.

India is known to be a price-conscious market. To grab a big pie of the country’s burgeoning OTT market, the likes of JioCinema and Disney+ Hotstar have resorted to streaming premium cricket content for free to attract customers and potentially convert some of them to paying subscribers.

According to the Global Entertainment & Media Outlook 2023–2027 report by PWC, the global AVOD industry is expected to witness significant growth in the coming years. The study projects a CAGR of 13.8 percent, indicating a surge in AVOD revenue from $28.7 Bn in 2022 to a whopping $ 54.8 Bn by 2027.

At the time of the launch of its ad-supported plan, Netflix said, “Basic with Ads also represents an exciting opportunity for advertisers — the chance to reach a diverse audience, including younger viewers who increasingly don’t watch linear TV, in a premium environment with a seamless, high-resolution ads experience.”

It must be noted that Netflix initiated a crackdown on password sharing in July 2023 to increase its revenue. In India, the company informed its subscribers that a single account will now be restricted for use within a single household.

The company reported a profit of $1.5 Bn during the second quarter of 2023 and a revenue of $8.2 Bn. Netflix added nearly 6 Mn subscribers as it wrapped up Q2 with 238 Mn total subscribers.

However, in the absence of sports content, specifically cricket, Netflix is a small player in the crowded Indian OTT market. As such, the introduction of the cheaper ad-supported plan in India is likely to provide an opportunity to Netflix to increase its user base and market share. Now, it remains to be seen if it decides to launch the plan in the world’s populous country as well.