Netflix To Cut Spending By $300M Following Password Crackdown Delay

Netflix, which has positioned the delayed rollout of its crackdown on free password sharing from first quarter to second quarter 2023 as designed to boost the results of the initiative, now plans to reduce its spending by $300 million in 2023, largely due to the delay in realizing the revenue projected from that move.

The planned cost reduction, which is relatively small in the context of Netflix’s $26 billion in operating expenses last year, will not entail further layoffs or a hiring freeze, Netflix executives said in an internal meeting this month, although they asked employees to practice conservative spending, according to Wall Street Journal sources. They did not indicate where the savings would be realized.

Last year, Netflix — which has about 11,000 employees worldwide — laid off nearly 500 employees between May and September, and exited some real estate leases to reduce its office expenses.

Netflix began what it calls its “paid sharing” program — which requires account holders to start paying extra to share their accounts or free password users to start their own accounts — in Latin America last year and started to roll it out in Canada, New Zealand and Portugal, as well as Spain, in February. 

The company announced the postponement of the paid sharing rollout in the U.S. and the rest of the world in its Q1 earnings release in mid April, saying it wanted time to incorporate learnings from the existing markets to further improve the experience for members and the results. 

Netflix lost 1 million users in Spain in little over a month after discontinuing free password sharing there in early February, according to a Kantar study based on surveys of household streaming habits. 

However, the company said it is “pleased” with the results of the program thus far, and is confident that the inevitable subscriber churn after paid sharing is implemented will be temporary, until formerly free users establish their own accounts. 

“We see a cancel reaction in each market when we announce the news,” Netflix stated. “In Canada, which we believe is a reliable predictor for the U.S., our paid membership base is now larger than prior to the launch of paid sharing and revenue growth has accelerated and is now growing faster than in the U.S.” 

Netflix added just 1.75 million new global subscribers in Q1, instead of the 2.4 million expected by analysts. It lost 400,000 subscribers in Latin America, and added only 100,000 in North America, after losing nearly 1 million in its biggest market last year. But it added 1.46 million subscribers in Asia-Pacific in the quarter, after lowering its prices in India and some other countries in the region. 

Now focused on growing revenue and profitability rather than user numbers, Netflix saw revenue rise 4% in Q1, although operating margin was 21% compared to 25% a year ago.

The company is projecting accelerated membership growth, as well as revenue, by this year’s second half, driven by the paid sharing and the launch of its ad-supported tier. 

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