Netflix’s Strategic Shift: Password Crackdown and Ad Introduction Boosts Subscriber Growth in Q4 2023

Netflix, the leading streaming platform, experienced a surge in sign-ups towards the end of 2023. This growth was primarily driven by the company’s crackdown on password sharing and the introduction of ads in select markets.

The streaming giant reported an impressive addition of over 13.1 million new subscribers in the third quarter ended in December. This was the most significant quarterly growth since 2020, marking a continuation of the growth streak that began the previous year.

Netflix expressed confidence in its growth trajectory and announced plans to raise prices. Co-chief executive Greg Peters shared this optimistic outlook during a call with financial analysts to discuss the latest quarterly update. He stated, “We’re able to resume our standard approach.”

Many of the new members opted for Netflix’s cheapest plan, which includes advertisements. In the 12 countries where Netflix offers ads, this plan accounted for 40% of the new sign-ups. This figure represents a significant shift for a company that had long resisted the sale of ads, citing concerns over complicating the business and negatively impacting the viewer experience.

The unexpected subscriber decline in the first half of 2022 and subsequent fall in profits forced Netflix to explore new ways to attract new viewers and generate additional revenue. In addition to ads and password crackdown, the company is experimenting with live events to expand its audience base.

On January 23, 2024, Netflix announced a 10-year, $5bn deal to bring WWE Raw, pro-wrestling’s most popular weekly show, to the platform. This move is expected to bring in a new demographic and boost subscriptions.

Netflix’s rivals, such as Amazon, are also making similar moves. Amazon is trying to increase its slate of live sports events and will start showing ads to Prime members when they watch, unless they pay an extra $2.99 per month.

Paolo Pescatore, an analyst at PP Foresight, commented on the latest results, stating, “Another cracking quarter to finish the year. These latest results reaffirm that Netflix is firmly the king among all streamers.”

Netflix charges £4.99 in the UK and $6.99 per month in the US for the standard plan with ads, compared to £10.99 and $15.49 without ads. The company does not expect advertising to contribute significantly to growth this year. However, the potential to earn more money per account by selling ads has sparked excitement on Wall Street.

Netflix had previously hinted that the ad-supported plan was gaining traction, reporting over 23 million accounts in comparison to the 15 million reported in November. Despite the strong growth in new subscribers, analysts had expressed concerns about the lack of a stand-out hit release during the quarter. Netflix, however, maintained that it offered a strong slate of programs, including hits like the Beckham documentary series and Adam Sandler’s Leo.

The platform received 18 Oscar nominations on January 24, 2024, including for the film “Maestro,” starring Bradley Cooper and Carey Mulligan. Shares jumped more than 6% in after-hours trade following the announcement of the strong quarterly results.

For the year, Netflix reported over $33.7bn in revenue in 2023, up more than 6% over 2022. Profits were $5.4bn for the year, compared to $4.49bn the previous year.

The strategic shift towards password crackdown and ad introduction has proven successful for Netflix, allowing the company to maintain its position as the leading streaming platform and continue its growth trajectory.