Subscribers Edge Up With Password Sharing Set To End

While those on social media remain worked up over Netflix’s
NFLX
much-delayed, disastrous Love Is Blind reunion Sunday night, the show must go on in entertainment.

The streaming company skimmed past that rare blip on Tuesday, releasing first quarter earnings that reflect the company’s recently revamped priorities. Perhaps symbolic of this move to the future, that included an announcement that the once-prolific DVD renter will wind down its DVD program later this year.

“All things considered, Netflix had a good start to the year despite the company’s increasing competition,” Forrester Vice President and Research Director Mike Proulx said in an email. “Netflix has to find new sources beyond subscriptions to fuel revenue growth which is why the company is embracing advertising and addressing the need to monetize its ‘freeloaders.’”

But Netflix had plenty of other big news to share, too. It added 1.75 million subscribers in first quarter, also its first quarter where it declined to offer subscriber guidance. Not coincidentally, after back-to-back subscriber declines last year, Netflix declared that it would shift its focus to revenue, which it calls a better measuring stick of its success—but investors still want to know the subscriber data.

The biggest gains came in Asia-Pacific (up 1.5 million), while the U.S. saw a modest 100,000 increase.

It marked a solid 4.9% year-over-year subscriber lift, though lower than analysts had expected (around 2.2 million) and nowhere near the remarkable 7.7 million subscribers the service added during fourth quarter, when it introduced its first-ever ad tier.

Speaking of the ad tier, Netflix remains coy about exact numbers but did say that it’s been a success so far. In fact, in a letter to shareholders, it said it plans to upgrade the service. “Given current healthy performance and trajectory of our per-member advertising economics, particularly in the US, we’re upgrading our ads experience with more streams and improved video quality to attract a broader range of consumers,” noted the letter.

Password Crackdowns Begin Soon in U.S.

What may impact subscriptions even more directly than the ad tier, which features lower pricing than other subscription options, is the rollout of Netflix’s password crackdown in the United States after previous introductions around the world.

Netflix said in the shareholder letter that the crackdown is slated to begin in second quarter, after previously saying that it would start in late first quarter.

“While this means that some of the expected membership growth and revenue benefit will fall in Q3 rather than Q2, we believe this will result in a better outcome from both our members and our business,” the company said in its earnings release.

The service began cracking down on passwords in Canada, New Zealand, Spain and Portugal in first quarter, building on an approach rolled out initially last year in Latin America.

Netflix claims as many as 100 million households share passwords, which it says represents hundreds of millions of losses. It has noted that when the account sharing crackdown begins, it initially sees some cancellations of accounts, but later that stabilizes and subscriptions grow.

The company said it wanted to implement some improvements to the plan, which it refers to as paid sharing, allowing subscribers to add other users to the account for a smaller fee than signing up for their own accounts.

Revenue Up From Last Year But Shares Drop

Netflix posted revenue of $8.16 billion, up from $7.87 billion a year ago—but, again, slightly missing the mark expected by analysts. Shares plunged right after the earnings were announced, though they rebounded after hours.

The company will have some big questions to answer going forward about its ability to deliver live events, an area it has increasingly pursued after last year’s subscriber decline. Other streamers had already begun hosting live sporting events, and Netflix picked up the live Chris Rock special and the SAG Awards in hopes of building buzz—but the Blind reunion suggests the streamer still doesn’t have its strategy ready.