Netflix decided to push back its crackdown on account sharing in the US after a test run of the initiative in other countries resulted in a “cancel reaction,” the company said.
The streaming giant — known for hits like “Stranger Things,” “Love is Blind” and “You,” — saw paid subscriptions plunge after it rolled out the stricter rules in markets that included Canada and Spain, according to a letter sent to shareholders Tuesday.
The company said it would delay the wider launch of account sharing in the US from the first quarter to the second, which would shift “some of the membership growth and revenue benefit” from the second quarter to the third.
Ted Sarandos, the company’s co-CEO, said the delay could cause engagement with Netflix’s service to shrink “modestly” in the short term, even though he expected that it would recover over time.
“This account sharing initiative is about creating a larger base of potential members,” Sarandos said during its first-quarter earnings call Tuesday. “That’s why were focused so much on execution.”
The Los Gatos, Calif.-based firm’s “paid sharing” service permits customers to share their account with people outside their household for an extra fee.
Netflix said about 100 million households “share” their accounts around the world.
Morgan Stanley estimated that Netflix could potentially convert 20% to 30% of those to paying subscribers.
The company — which has nearly 231 million subscribers worldwide, including 63 million in the US — saw an initial “cancel reaction” to its clampdown in other markets, with the move hurting “near-term” growth in its membership numbers.
But it ultimately led to higher paid subscriptions and revenue as users who were freeloading had to open their own accounts.
In Canada, the paid subscriber base is now higher than before the launch of the “paid sharing service,” the company said.
Netflix’s decision to crackdown on users comes a year after the streaming giant revealed it lost subscribers for the first time.
Aside from cracking down on account sharing, Netflix also launched an advertising-supported service in November, in hopes of pumping up revenues.
The company said in its earnings release late Tuesday that revenues would reach $8.24 billion in the second quarter, which is less than the $8.47 billion expected by Wall Street.
The news sank shares more than 10% in after-hours trading. Shares were down over 3%.in midday trading on Wednesday.
Despite the delayed rollout, the company said it was confident is would hit its full-year targets.
During the quarter, Netflix added 1.7 million subscribers globally, below analysts’ predictions of 2.3 million. Revenues rose 3.7% to $8.16 billion.
Net income fell 18.8% to $1.3 billion, or $2.88 a share, besting expectations.
Netflix also announced that it would wind down its 25-year-old DVD rental program in September.
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